Pre-Budget Report 2009 – small business reaction & impact

Alex Bellinger analyses the Pre-Budget Report’s impact on small businesses with updates and SME reaction – the good, the bad & the ugly.

By News Desk
9th December 2009 at 14:24

Alistair Darling Pre-Budget Report - small business impactIn his final Pre-Budget Report before the election, Chancellor of the Exchequer, Alistair Darling offers some benefits to help SMEs, but the overall package is short of what most small business groups wanted. Here are the key facts, feedback and opinion.

The main theme of the PBR was to balance investment in key areas, while trying to redress the spiralling national debt.

But Shadow Chancellor George Osborne called it a pre-election, rather than a pre-budget report, claiming the government had skipped making really hard decisions on cuts.

Meanwhile, Vince Cable of the Lib Dems, with a typically pithy put-down called it a ‘good budget for bingo and boilers’ referring to announcements for a boiler scrappage scheme and a cut in duty on bingo.

But as predicted last week, the Christmas cheer is in short supply for small businesses who, while benefiting in some areas, were also hit with a tax on jobs.

VAT Up

Small business groups had argued for VAT staying at 15%, but the Chancellor confirmed it would rise back to 17.5% from 1 January 2010.

And his phrase ‘I have no other changes to VAT to announce’ sounded good for now, but possibly bad news down the road. Definitely keeping his options open.

Tax

Perhaps the biggest single benefit to small businesses is the deferral of any increase in the rate of corporation tax for SMEs. More time to pay the tax man will also help.

  • The proposed rise in corporation tax from 21% to 22% for 2010 will not now take place until 2011 at the earliest, benefiting up to 850,000 small businesses to the tune of £500 million.
  • 2010 will see an extension of the Business Payment Support Service scheme which allows businesses to defer paying corporation tax and VAT, although some have argued this could lead to a ticking timebomb of repayment further down the line.

A Tax On Jobs?

National Insurance Contributions are a big issue for small businesses trying to grow, boost jobs and support the rebuilding of the economy. In the biggest blow of the PBR for small businesses, the Chancellor chose to increase this tax on jobs.

  • National Insurance contributions for employers, employees and the self-employed will rise by a further 0.5% from April 2011, apparently yielding the Treasury £3 billion a year in additional tax revenue to go towards schools, policing and hospitals.

CBI Director General, Richard Lambert, says:

The Chancellor has made a serious mistake imposing an extra jobs tax at a time when the economic recovery will still be fragile. Increasing the National Insurance contribution will hold back job creation and growth.

Green, Clean & Innovative Win

Businesses in the green, clean and innovation sectors receive some beneficial incentives.

  • £160 million in private and public loans will be made available for companies investing in clean and low carbon technologies.
  • Corporation tax will fall to 10p for companies profiting from UK developed patents.
  • £90 million will be diverted from the European Investment Bank’s 2020 fund to support green infrastructure projects.

Small business lending

The whole issue of bank lending to SMEs was left rather vague. The Chancellor again said he’d be working with banks to ensure more lending got to smaller businesses who needed it.

But there was little more detail than that, other than the extension of the controversial Enterprise Finance Guarantee Scheme (EFG), where the 2009/10 budget of £1.2 billion was more than halved to £500 million for 2010/11.

Only a little over £600 million in guarantees of the original EFG allocation have been provided to just 6,000 firms so far.

One could argue that the ‘extra’ £500 million will simply come from the shortfall left at the end of March from the original £1.2 billion, thereby representing no additional money made available.

John Wright, chairman of the Federation of Small Businesses puts it astutely:

The Government has missed a chance to really tackle a difficult credit market by failing to create more options for access to finance, and more competition among high street banks.

For a handy practical guide from SmallBizPod’s very own accountant, head over to:

http://www.jamesesmith.co.uk/prebudget2009.htm

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  1. Martyn says:

    A scorched earth policy from Brown and Darling – typical Labour., i.e.

    1. Ensure the UK economy is completely shot away before the Torys take over.
    2. In opposition bang on about ‘Evil Tory’ cuts knowing they should’ve made them.

    The Labour cabinet, like bank executives and the FSA, should be hauled over the coals (or worse!) for making a complete balls up of the economy for the last 10 years.

    There is just no accountability at the top in this country any more – if a politico, senior civil servant or plc board member screws up they deny everything, blame someone else and are ‘retired’ with a fat pay-off.

    If I screw up in my business, I lose everything, and it should be the same for them.

  2. News Desk says:

    It’s cynical and it’s a mess.

    My respect for anyone running their own business, like you Martyn, like my wife, like millions of us out there, grows and grows.

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