This was a mixed Budget for British SMEs

 
Katherine Denham
Chancellor Leaves Downing Street For Budget Speech
The government needs to give our growing businesses some support (Source: Getty)

British businesses waited with bated breath for the chancellor to serve them another blow in his Budget speech last week.

But Philip Hammond has finally cut small and medium sized enterprises (SMEs) some slack, and dished out a number of policies to try to win them over.

In his Autumn Statement last year, flat-rate VAT was increased to 16.5 per cent for “limited cost businesses” ­– that is, those companies that don’t pay a lot for their goods (where goods cost two per cent of their turnover, or £1,000 a year).

Read more: Nightmare of business rates eased as Hammond announces raft of changes

But on Wednesday, the chancellor hinted at a possible change to the VAT threshold for businesses.

As it stands, businesses with a turnover of more than £85,000 have to register on the VAT system. Reducing the UK’s VAT threshold means more small businesses would be caught in the tax net, but Hammond went on to say he was “not minded” to shrink the limit.

After listening to concerns from the Federation of Small Businesses, Hammond has said he will consult on whether the system could be altered to better incentivise growth.

Businesses can relax knowing the threshold will stay at £85,000 until 2020, but they won’t be jumping for joy yet.

Peter Alderson, MD of small business finance provider LDF, says: “given the promises made earlier in the year and where we find ourselves now, this Budget was always going to have to strike a difficult balance.

“All things considered, however, it felt like a mixed budget for UK small businesses.”

SMEs undoubtedly perked up when Hammond said that he was going to switch the way business rate rises are calculated two years earlier than planned, basing it on the lower consumer price index instead of the current measure, which uses the retail price index.

Small businesses have not had it easy, and judging by his speech, it seems that Hammond has finally realised how crucial they are to our economy.

SMEs accounted for 99.9 per cent of all businesses at last count, employing 60 per cent of all private sector workers in the UK, driving £1.8 trillion of combined annual turnover.

The cliche that they are the backbone of our economy holds true.

Hammond’s commitment towards research and development will tantalise some SMEs, with the allocation of a further £2.3bn of investment sure to pique the interest of our booming tech industry.

While SMEs will hope the reasonably positive note is here to stay, concerns have been raised.

National Living Wage increases will have to be paid for. A hike from 4.4 per cent from £7.50 an hour to £7.83 from April next year for over-25s puts a strain on firms already struggling to make ends meet.

Alderson comments: “the commitment to further investment in R&D was encouraging to hear, especially as we head towards the ‘fourth industrial revolution’.

“On the flipside of this, however, the absence of a solution to the present skills shortage among SMEs is still a hurdle to be overcome. The effects of this are already being felt among UK small business, with increasing numbers of our customers approaching us to finance ‘the gap’ in recruitment and training.”

If we are going to make a success of Brexit, the government needs to give our growing businesses some support. Productivity forecasts dwindle – years of sluggish growth await.

This Budget was a welcome start, but further help and investment is needed if the government is serious about fortifying this pillar of our economy.

Read more: Autumn Budget 2017: How business leaders, unions, and experts reacted

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