The 2011 Budget: Our reaction
What the Finance Act really means for Britain's small businesses
George Osborne roared about the road from rescue to recovery, and preached about getting Britain open for Business. Ed Miliband muttered darkly about Del Boy and deceit, iPods and alarm clocks. Whatever you say about this year’s Budget, it’s certainly sparked some fertile opinions.
But what are the hard facts behind the bluff and bluster? Will the Budget really make Britain the best place in the world to start, grow and finance a business, as Osborne pronounced – or, as the Labour leader said, is it really just a series of cosmetic sops, masking falling growth and yet more unpalatable taxes?
On the face of it, the future for small business looks bright. A merger of National Insurance and income tax, bringing greater simplicity; an end to the soaring rise in fuel duty, helping entrepreneurs get around; a doubling of entrepreneurs’ relief, bringing greater incentives for those looking to start a business; and a three-year moratorium on regulation for the smallest firms, reducing the burdens which have placed such an irritating load on those most in need of freedom and space.
But, when you look more deeply, lots of questions remain unanswered, and perhaps the biggest questions concern the integration of NI and income tax. Osborne said he would “consult” on this radical policy, but this does not amount to a firm commitment – he could easily take one look at the integration issue, and back out.
Furthermore, one might ask how the tax merger will actually work in practice. It may sound great, but inevitably it will involve a huge amount of hard graft and bureaucracy, and may take years to come on stream – hardly welcome news for those entrepreneurs who need help now.
Some may even claim that, in raising the merger issue, the chancellor is missing the point. As the Forum of Private Business (FPB)said in the aftermath of Osborne’s speech, National Insurance is still rising for most firms – and little has been done to check this rise.
A number of the other taxation and relief measures will provide clearer benefit. Even the government’s staunchest critic would struggle to argue against the doubling of entrepreneurs’ relief having a positive impact, and the extension of the small business rate relief holiday will be similarly helpful.
However many will argue that, if the chancellor is truly serious in his commitment to helping the small business nation, he could have gone much further in his tax reforms. The main rate of corporation tax will be reduced over the next three years, but this is really only relevant to larger companies; the chancellor made no mention of the small business rate, which currently stands at a daunting 21%.
A number of proposals which might have transformed the small business landscape were ignored. For example the chancellor declined the chance to extend the National Insurance Contribution holiday to existing businesses – “a missed opportunity” according to the Federation of Small Businesses (FSB)- and his tweaks to the Low Value Consignment Relief regulations will hardly worry the online retail giants which have turned the Channel Islands into a VAT loophole, at the expense of small shops.
Firms located in the 21 new ‘Enterprise Zones,’ announced as part of the Finance Act, will benefit from additional relief – but what about the firms located outside these zones? Is this not a little arbitrary? The first wave of Enterprise Zones will be concentrated in urban areas, so entrepreneurs based in more rustic locations will surely feel slightly miffed that they are missing out, simply because they choose to work outside the city.
Perhaps the tax measures which are being abolished will have more of an impact than those which are being introduced. In all, the chancellor announced the abolition of 43 different tax reliefs, as part of his crusade to simplify the tax system – a crusade built upon the three-year moratorium on red tape for new businesses, and those with 10 employees or less.
‘Red tape’ is surely the most reviled phrase in the English language for Britain’s small businesses, and almost everyone we spoke to at last week’s FSB conference wanted a reduction in regulation. So the three-year holiday is, undoubtedly, a big step forward.
But what about firms with more than 10 employees? And, just as importantly, what about Europe? The FPB is concerned that, while the moratorium will block the introduction of regulations from the UK government, it may have no effect on red tape streaming in from Brussels – and, given the European Parliament’s love of bureaucracy, the red tape holiday may not provide the panacea many entrepreneurs are hoping for.
And this may be equally true of the fuel duty measures, heralded as a boon for small businesses everywhere. The price of fuel will fall by 1p per litre from 6pm tonight; but that’s only a drop in the oil sump when one considers that prices at the pump have soared by 17p per litre for petrol, and 23p per litre for diesel over the last 12 months.
Conversely, one could argue that the fall in fuel duty is less significant than many believe. According to the AA fuel price comparison site, the UK already charges less for unleaded petrol than Germany, France, Holland, Finland, Denmark, Greece and Norway.
High fuel prices are a pain for everyone, but it could be argued that small businesses have blown their significance out of all proportion – and thus the drop in prices may not be as helpful as the headlines suggest.
A decent start
Yet, for all this reservation, perhaps we should cut the government a bit of slack.
It is easy to argue the chancellor could have gone further in his crusade to help small businesses, particularly given the contraction in growth he announced in his Budget speech. After years of recession, entrepreneurs naturally want a quick fix, which is simply impossible.
However, while we note the limitations in the 2011 Budget, we must acknowledge that it is most definitely a good start. George Osborne could have provided more help, but he could also have provided much, much less; in years to come, Britain’s entrepreneurs may look back on March 23 2011 as the day their fortunes began to change for the better.