Most small business bosses were probably too busy with day-to-day work to watch the Chancellor’s Autumn Statement last Thursday. Some might even have thought cynically that George Osborne’s update on the Government’s spending plans was unlikely to contain anything that would make a significant difference to their enterprise.
In fact, there were several announcements aimed at smaller firms that should give some reason for cheer.
- A cap on business rates was the biggest good news story for many. The unpopular business tax will be limited to two per cent from next April, instead of the planned increase to 3.2 per cent. The changes will be worth about £1.1 billion to small firms in the next financial year. SMEs will be also able to pay rates in 12 monthly instalments to ease the cost burden, rather than paying up-front, as currently happens.
- With one in ten shops in the UK sitting empty, according to the British Retail Consortium (BRC), smaller retailers should welcome a reoccupation relief that will halve the business rates for new occupants of vacant high street premises – though the scheme only applies to properties that have been empty for more than a year.
- Every retail premises in England with a rateable value of up to £50,000 will get a discount equivalent to £1,000 on their bills. The very smallest of firms will pay no business rates at all. Warming to the theme of the challenges facing retailers, Osborne also took the chance to name-check Small Business Saturday, this weekend’s celebration of independent, local traders, in his speech.
- Employer National Insurance contributions will be scrapped for 1.5 million jobs for the under-21s, reducing the cost of employing a young recruit on a salary of £12,000 by £500, and delivering a saving of £1,000 if someone’s on £16,000. This will come into effect from April 2015.
- A further £250 million has been added to the £1 billion already in the coffers of the British Business Bank, which has been created to leverage its capital and use Government guarantees to lend higher sums to SMEs.
- An extra 50,000 start-up loans will be made available for budding entrepreneurs – worth £160 million over six years – while there was also a pledge to extend the reach of the New Enterprise Allowance, which helps people on benefits launch their own business.
- The finance available to British small firms with ambitions to export was doubled to £50 billion to help encourage SMEs to break into valuable emerging markets.
- Employers will be funded directly via HMRC to take on apprentices, creating 20,000 more higher apprenticeships over the next two years.
So, not such a mean offering for smaller companies, after all. There was some good news for small retailers, in particular, potential help for those employing young staff, and a welcome boost for firms thinking about exploiting trade opportunities overseas. But critics, including the manufacturers’ organisation EEF, hit out at the absence of any help for SMEs struggling with high energy costs. Others queried why the Government is dragging its heels on a total overhaul of business rates, a system that is still calculated on the Retail Price Index, which can see SMEs severely affected by inflation. For example, when electricity prices go up, firms are doubly hit when their utility bills and rates payable increase at the same time. The Chancellor did suggest that a long-called-for shake-up of business rates may be on the cards, saying that business leaders would be consulted about how best to reform the unpopular system “post-2017”, but that kicks any likely action into the long grass and no one will be holding their breath for an outcome any time soon.
There has been some seemingly positive news for businesses looking for funding. Along with the extra £250 million being pumped into the new Business Bank, the Governor of the Bank of England also announced further help for small firms recently. Mark Carney revealed at the end of November that the Bank’s Funding for Lending scheme (FLS) will shift its focus from propping up mortgages and household borrowing towards support for business lending from 2014. It’s a long overdue move. The most recent FLS figures showed just £3.6 billion of small business lending under the scheme in the third quarter of this year, compared with £5.2 billion going to households.
Marcus Grimshaw, chairman of the National Association of Commercial Finance Brokers, thinks many lenders continue to run scared of smaller firms and believes that the Government and the Bank of England have made a tardy response to the obvious need of Britain’s SMEs. He added: “Although the cost of SME credit has been slowly improving, it hasn’t been happening fast enough to support many companies in need. Better loan pricing has also been offset by a persistent caution when it comes to backing ‘riskier’ SMEs. The honed FLS scheme is now firmly pointed towards helping the SME market in 2014. Its support is really needed, both to increase lending and to encourage lenders to drop rates for those SMEs for whom credit is still very costly.”
Other experts also point out that the big banks are already nowhere near their allowance for lending to businesses under the FLS initiative, so predict that the refocusing of the scheme away from households and towards company borrowing is unlikely to affect lenders’ behaviour. In simple terms, banks are still wary of lending to small businesses and even the most favourable support packages don’t seem to be changing that negative bias. Marc Glazer, chief executive of Boost Capital, acknowledged the merit in many of the Chancellor’s announcements, but reiterated this fundamental flaw in the FLS approach. He said:
“There was no mention of help for those small businesses in the hospitality sector that are looking for funding to help them grow. In phasing out the Funding for Lending for mortgages and refocusing the scheme on small businesses, the Government seems to be hoping to increase bank lending to small businesses. So far, the scheme has had little success in doing this and only time will tell if this renewed focus does have the desired effect.”
John Longworth, Director General of the British Chambers of Commerce, still feels the Government has much more to do to help SMEs get the funding that they need – and that they need now. He commented: “The real litmus test for the Funding for Lending scheme is whether it can really get finance flowing to SMEs. Young, high-growth businesses that could be the wealth creators of tomorrow are still being left out in the cold when trying to access finance. The re-focusing of FLS towards business lending, plus the announcement that the British Business Bank will receive an extra £250 million, are both positive steps in the right direction. However, the Government’s current plans just aren’t ambitious enough.”
However sunny this Autumn Statement may have seemed for SMEs, the Chancellor delivered it against a very wintry backdrop – and many business owners would say that they are still in the grips of a financial chill. Until they start to feel the effects of any of his business-friendly policies, through increased lending and resulting genuine business growth, many will say that spring and its green shoots still seem a very long way off.
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