Pre-Budget Report 2008, SMEs and the murder of purdah

Alistair Darling and Gordon Brown will leave nothing to the imagination in the Pre-Budget Report, designed to stimulate the economy and give British small businesses the cashflow they crave.

23rd November 2008 at 11:15 pm

I used to love the idea of the Treasury going into purdah before the Budget, like some mysterious veiled woman from the East.

But these days, not only is the Pre-Budget Report (PBR), for the second year running, shaping up to be the real star of the show, rather than the Budget proper next Spring, but Gordon Brown and Alistair Darling are also leaving very little to the imagination.

Gordon Brown leaving nothing to the imagination in the Pre-Budget Report

Gordon Brown leaving nothing to the imagination in the Pre-Budget Report

Posing for cameras tonight with pre-printed copies of the PBR in hand, the Chancellor and his team looked more like Man Booker hopefuls, than the custodians of fiscal policy that could change the shape of Britain for many years to come.

At the end of last week, the usual predictions and exhortations were being made by accountants and small business groups.

As early as Thursday, Gary Harley, head of indirect tax at accountants KPMG appears to have nailed one of the headlines for tomorrow:

There is growing speculation that VAT will be cut.  The UK could reduce the rate to 15 percent without any legal issues arising.

Although he goes on to suggest it’s hardly the targeted tax cut expected, it does of course put money in people’s pockets and also benefits small businesses.

It seems certain, however, that the rate will bounce back to 17.5% after a year or so, once the medicine has taken effect.

This give now, take back later approach is clearly going to be a theme.  The media’s awash with reports that the rich will be taxed at 45% by 2010 in order to help pay for a total Pre-Budget Report spending package expected to be £16 billion.

The always insightful Andrew Jupp of accountancy firm Tenon, dismisses the idea of a cut in VAT (good job he’s not a betting man), but goes on to highlight key issues for small businesses which he feels we could see tomorrow:

What I would like to see is a permanent back-down on the so-called income-splitting rules, so that family businesses can get on with creating profits rather than worrying about how they will be taxed.

He then encourages the Chancellor to abolish the increase in corporation tax for small companies which has crept up by 2% over the last couple of years.  Both these suggestions are just and plausible.

Most radical and certainly most welcome is the Federation of Small Businesses call for a £1 billion survival fund for SMEs in an open letter addressed to Alistair Darling.

Having said that this might as well be pie in the sky (despite British banks receiving a £500 million bailout) albeit a pie stuffed with hearty chunks of lobbying goodness.

So will there be a ‘rabbit from the hat’ of cliché?  Well, it seems unlikely.

What is surprising to me is the spend, spend, spend short term solution that’s shaping up, before we hit pay back time around 2010.

Is this political expediency, an attempt to defer the real pain or the only possible solution in extraordinary times?

I’ve no idea.  How about you?

[Picture credit: World Economic Forum licenced from Flickr]


Alex is the founder and editor of SmallBizPod, the UK's first podcast dedicated to small business, start-ups and entrepreneurship. Alex writes about topical small business issues, entrepreneurs and anything else that catches his eye here on the small business blog.

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  1. Martyn says:


    How does a cut in VAT help small business?


  2. Hi Martyn

    Indirectly, I guess, assuming it helps to stimulate spending.


    P.S. Forgot to say, many of the smallest non-VAT registered SMEs will also see a VAT cut in the same way as a consumer, n’est-ce pas?

  3. Martyn says:

    >> Non-registered
    Agreed that their inputs will fall by 2% but they may have to cut their prices to match registered competitors is they sell to the public

    But… a VAT cut actually hits the cashflow of VAT registered businesses who don’t sell to the public at large and have short term working capital borrowings funded by factoring or invoice discounting.

    So, by the law of unintended consequences this measure may put even more pressure on small business cashflow and increase financing costs.

    Then Darling plans to increase the tax on the people who own/run these businesses further down the line.

  4. Thanks Martyn, the cashflow issue hadn’t occurred to me and exactly why your insight here is so valuable to me and I’m sure other readers too.

    Hmmm … £1 billion in a Small Business Finance Scheme! So much for my ‘pie in the sky comment’ above. I may stick to writing about web apps 😉

  5. […] [Theoretically designed to boost consumer spending, may benefit some 2 million non-VAT registered businesses, but … with prices falling anyway and people tightening their belts will consumers continue to spend?  Also see the comments on the unintended consequence of VAT reductions for some small businesses.] […]

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