Described by some as “sending out a positive message to invest and grow in the year ahead”, Chancellor George Osborne’s 2014 Budget was aimed at the “makers, doers and savers” (www.bbc.co.uk/news/uk-politics-26650853), and was intended to make changes with a positive influence on businesses right across the UK. The Chancellor highlighted the need for a budget that would encourage a “resilient economy”, building a better business environment and led by companies enjoying renewed confidence in their future success. Judith Tavanyar examines the content of the Budget in detail.
Osborne’s Budget certainly looks wide-ranging at first sight — decreased duty on bingo, a penny off the price of a pint, increased ISA allowances, and a new 12-sided £1 coin to hit the nation’s purses in this financial year.
There is early talk of economic recovery, renewed optimism, growth. Employment levels have increased by 105,000 since November 2013, and the number of people out of work fell by 63,000 between November 2013 and January 2014, according to the Office for National Statistics (www.statistics.gov.uk). Is there room for small businesses to sit back in the Spring sunshine and breathe a sigh of relief?
One much-publicised element of this Budget is a better deal for investors. The increased investment allowance heralded for 1 April 2014 onwards, until the end of 2016, will double the existing allowance from £250,000 per year to £500,000 from 1 April, providing businesses with the certainty of immediate tax relief on investments in plant and equipment, thereby encouraging them to invest and grow their business.
This is likely to benefit 99.8% of businesses, enabling them to pay no tax on annual investments. Economists highlight this as a key shift away from consumer-led economic growth, to growth through rising corporate investment — a move for a more sustainable economy in the longer term, perhaps.
Other tax relief measures are likely to excite the most micro of businesses. An increase in the Income Tax personal allowance threshold to £10,500 is one of them, and also in the higher tax rate of 40%, now starting at £41,865 — all of which is likely to put more cash in the pockets of consumers and business clients alike.
Exporters will be pleased by the reduction on the rate of interest on export lending by 1/3, resulting in a doubling of export finance to £3 billion. In addition, budgetary support has been pledged to regional airports, enabling them to open new routes to developing markets such as Brazil, Russia, India and China. This, and a reduction in air passenger duty for some long haul routes to £67, will be welcomed by business owners with an eye on international markets.
Research and development tax relief also features. Technical start-ups will receive a Research and Development tax credit increase to 14.5% (up from 11%), in a drive to support innovation in business products and services. At the same time, the corporate tax “roadmap” will be reduced to 20% by 1 April 2015, providing tax relief to a broad range of smaller companies.
What about business costs such as utility bills? A £7 billion package to cut energy bills for manufacturing businesses is likely to translate into significant savings and, in the longer term, job creation opportunities. The Small Business Index shows that utility rates remain the main cause for increasing business costs in more than 50% of small firms, and this support to energy-intensive businesses will be a welcome move, particularly if coupled in future with increased transparency about energy prices in general.
The Chancellor also includes a supportive gesture for the 900,000 young unemployed people between 16 and 24 years old in this year’s Budget. The apprenticeship scheme has now been extended, with grants becoming available for an additional 100,000 apprenticeships in coming months. This is vitally important not only in supporting young people into work, but also in helping firms take on and train a younger workforce in crucial skills for British industry.
There is some relief, too, for working parents, including those running their own businesses. The cost of childcare has shot up since 2010 — some families pay as much for childcare as they do for their mortgage. The Budget’s extension of tax relief for working families to cover children up to the age of 12 is bound to take a little pressure off, and it is estimated that some 1.9 million families could benefit from this; twice as many as under the present scheme.
The additional tax relief policy will now include self-employed and part-time workers, and is coupled with a £50 million boost for nurseries looking after the most deprived three and four-year-olds, enabling the poorest of UK families to have 85% of their childcare costs covered (from 70% previously). As the Government now appears to recognise, investment in childcare really is the backbone of a stronger, thriving UK economy.
So far, so good. But is there a negative side to the Chancellor’s new 12-edged coin?
Businesses hit by widespread flooding in areas of the UK earlier this year have faced an average cost of £1531 for repairs to damaged property and plant. Many come away empty-handed in this Budget. While the Flood Relief Support Scheme was set up to support affected businesses through grants for damage repair and future flood prevention, alongside 100% rate relief and recovery planning, the scheme offers nothing towards rising insurance costs. Some 37% of businesses in flood-hit areas expect insurance costs to rise sharply in coming months.
Other businesses industries will be frustrated by the lack of additional investment in infrastructure, or announcement of business rates review. The Forum of Private Businesses commented that although cuts to energy bills were warmly appreciated, hopes that the Chancellor would tackle the Climate Change Levy — a tax on non-domestic energy aiming to reduce carbon emissions — had been thwarted (www.fpb.org/news).
Small businesses currently account for 47% of private sector employment and 33.1% of turnover in the UK (Federation of Small Businesses, Small Business Statistics, 2013). While not exactly revolutionary, the Chancellor’s 2014 Budget certainly includes positive moves for us. At the same time, it has been criticised for including too many favours to the well-established corporate players, while fledgling businesses on tiny budgets still find it a struggle to survive.
This Budget is introduced against a backdrop of change in working patterns. As flexibility of working hours and location is increased through increasingly sophisticated virtual communication technology, micro-businesses, frequently run by working parents seeking to fit around family life and turn seedling ideas into marketable products, will finally gain the impetus they deserve to flourish. Too many “micros” fielding brilliant ideas struggle because they simply do not have the time and financial “breathing space” in the early stages of development to market themselves adequately, develop client relationships and fine-tune their service.
The Chancellor’s Budget is doubtless a step in the right direction for smaller businesses. And although it is in some ways only a baby step, let’s hope there are more to come.
Last reviewed 9 April 2014