U.K. lawmakers released the 2015 Budget plans last week, one Chancellor of the Exchequer George Osborne said would be a “Budget for the working people,” and one he said would create the largest structural budget surplus — of £11.6 billion ($18 billion) by 2020-21 — in four decades.
As a so-called “Emergency Budget,” the proposal was released quite soon after May’s general election, a race that generated massive debate and discussion surrounding issues that directly affect SMEs in the nation.
It is no surprise, then, that analysts are scrutinizing Osborne’s summer Budget in the context of how it will impact the SME community. PYMNTS takes a look at the proposed legislation and examines the conflicting sides of whether the initiative should be celebrated by small business owners, or dreaded.
A slew of the Budget’s language targets small businesses directly. Osborne said the U.K. corporate tax rate will be cut to 19 percent in 2017, followed by an additional cut to 18 percent by 2020. According to reports, the corporate tax rate hit as high as 28 percent when Osborne first took his post in 2010. It’s a measure the MP said signals to the world that the U.K. is “open for business.”
For SMEs specifically, a £3,000 ($4,654) allowance will be provided to fuel hiring under proposed minimum wage hikes. Accountancy firm BDO told The Telegraph that this allowance will make it easier for SMEs that offer minimum wage to offset the wage hikes up to 2,000 hours. But after that, businesses will have to absorb those costs.
Further, the £200,000 ($310,000) annual investment allowance, previously implemented as a tax break, will become a permanent fixture beginning in 2016. The allowance establishes how much a business can write off on its tax documents based on how much it invests in equipment and other capital aimed at strengthening the business.
Analysts said that the Budget appears to focus most of its small business support on small exporters, property builders and innovative SMEs focusing on building up the U.K.’s position in the world of technology and intellectual property. But there are other industries mentioned in the proposal that are likely to impact small businesses, too.
Osborne also introduced new measures that aim to support alternative lending, which may also prove vital to small businesses’ financial health, according to reports in Crowdfund Insider. MPs have proposed to include alternative financing methods into individual savings accounts (ISAs). In the policy statement, the government revealed that it will launch the Innovative Finance ISA next April, allowing P2P lending for ISA. Lawmakers are also working on passing rules that offer bad debt relief for P2P lenders, which may encourage investors to consider the investment option.
“The inclusion of peer-to-peer lending within ISAs is a pivotal moment for our industry,” said Funding Circle cofounder James Meeking to Crowdfund Insider. “Not only will it give investors a better deal, but it will help even more small businesses access the finance they need to grow, which in turn helps the economy. Everyone wins.”
Meeking went on to add that Funding Circle data shows 41 percent of investors agreed they would invest more in alternative lending marketplaces if they were included in ISAs.
“Additionally, the Tax Incentivized Savings Association estimates that more than £50 billion [$77.6 billion] is invested in ISAs every year,” he added. “If just 3 percent of this money was channeled through marketplaces such as Funding Circle, it would create more than £1.5 billion [$2.3 billion] of new lending to businesses annually, leading to approximately 75,000 new jobs.”
Lending Works CEO Nick Harding, however, had a less optimistic view of the new proposal. “We are pleased that peer-to-peer lending will be included in the new Innovative Finance ISA from 6 April 2016,” he told the publication. “However, it’s a shame that the Treasury and the FCA [Financial Conduct Authority] have decided against the creation of a Lending ISA.”
Harding is not the only industry player pointing out some of the Budget’s shortcomings. While many agree that these proposals signal government support for the small business community, some analysts are criticizing the Budget as one that fails to go far enough to boost the economic standing of the U.K.’s SMEs.
Small businesses are likely to be less impacted by the corporate tax rate decrease, but reports at The Telegraph said they will be hit hardest by the minimum wage hike, for example.
“The new £9 hourly rate for the over-25s did not enamor [Osborne] to the thousands of startups and SMEs in the country for whom employment is often the biggest cost — the very companies which Mr. Osborne hopes will be producing his target of 2 million new jobs over the next few years,” wrote former Independent business editor Margareta Pagano.
Others decried how MPs virtually ignored the issue of business property rents for SMEs, as well as the late payments problem.
“In his March Budget speech,” said Liquid Finance Director of European Development Richard Morley in a recent interview with SmallBusiness.co.uk, “George Osborne notably failed to mention plans to tighten regulation although it was added later that measures were being put in place to address poor payment practices to make it fairer for SMEs in particular.”
“Deregulation and ‘cutting of red tape’ around late bill payments is often discussed, but what we need now is some real action to address the issue,” he said.
Osborne’s Budget proposal has led to a slew of commentary both applauding and denouncing Parliament’s decisions that directly affect the nation’s small and medium-sized businesses. Industry analysts will surely continue to keep their eyes fixed on how this Budget plays out, especially so soon after Prime Minister David Cameron’s victorious reelection — a position largely won on the politician’s stance in favor of small businesses.
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