Alistair Darling has announced a £2.5bn package of support for small firms in what the chancellor called his ‘Budget for recovery’.
In one of several moves to increase bank lending to businesses, a new appeals service for firms who believe they have been unfairly turned down for credit is to be set up.
The Credit Adjudication Service will examine banks’ lending decisions, as well as having legal powers to enforce judgments where it feels applications have been unfairly denied.
Darling also confirmed reports that bailed-out banks Royal Bank of Scotland and Lloyds Banking Group have committed to providing a gross £94bn in new loans to businesses, nearly half of which have been earmarked for small and medium-sized firms.
The Federation of Small Businesses (FSB) applauded these efforts to increase small firms’ access to credit, but stressed that lending targets alone will not go far enough.
“The targets will have little impact if the banks do not begin to offer more affordable finance,” said John Wright, FSB national chairman.
In one of several unanticipated moves, the government also announced that it will fund a temporary increase in the level of business rates relief for one year from October, whereby eligible small businesses occupying properties with rateable values of up to £6,000 will pay no business rates.
Darling said this would benefit around 500,000 small businesses, around 345,000 of which will pay no rates at all.
Wright added: “A third of FSB members have said that business rates are the biggest taxation obstacle to growth and today’s announcement will go far to help firms, especially local shops and businesses.”
A £500m Growth Capital Fund to invest in small, growing businesses and part-funded by the bailed out banks was confirmed today, while the government also announced the formation of a new umbrella organisation, called UK Finance for Growth, to oversee all of the government’s £4bn worth of financial support for small businesses.
Following Labour’s controversial scrapping of capital gains tax (CGT) taper relief in April 2008, Darling also used his pre-election Budget to announce that the ‘Entrepreneurs’ Relief’ threshold, on which CGT is levied at 10% on the first £1m of gains, is being doubled to £2m.
In yet another unexpected move, the chancellor doubled the annual investment allowance for plant and machinery spending to £100,000.
The Time to Pay scheme, which Darling said has enabled small businesses to spread £5bn worth of tax payments, will be extended for the life of the next parliament, while the government has also pledged to increase the number of central government contracts awarded to small businesses by 15%.
The chancellor revised his figure for this year’s Budget deficit to
£167bn, £11bn lower than was forecast in December’s PBR. His forecast
for borrowing in 2010/11 is £163bn; this will drop to £131bn in 2011/12.
Darling
said this news, along with last week’s jobless figures (the number of
unemployed people fell by 33,000 to 2.45 million in the three months to
January 2010) demonstrated that Labour had made “the right calls” to
speed up the recovery while protecting front line services. He also
acknowledged the vital role the private sector will play in driving the
recovery, and the creation of future jobs.
However, despite widespread pleas from business lobby groups, there are no plans to scrap the planned 1% increase in National Insurance contributions (NICs), which will come into force in April 2011, nor the rise in the small firms’ corporate tax rate from 21% to 22% which will also come into force next year.
“This Budget has provided welcome news on helping to improve small businesses cashflow but the increase in the NICs will be bad for job creation,” added Wright.
“FSB and CEBR research shows that the 1% increase would cost 57,000 jobs in the UK. It is a tax on jobs which will do nothing to aid economic growth.”
Lisa Macpherson, national director of tax at PKF, added that the £2.5bn support package would be short-lived and overshadowed by future NI increases.
She said: “The tax breaks for small businesses are clearly politically motivated and designed to neutralise the opposition parties’ appeals to SMEs.
“However, they will only offer a short term boost to growing businesses; for example the reduction in business rates is valuable, but only lasts for one year. The real worry is that any financial advantage will be more than wiped out by increases in NIC in 2011/12.”
Not mentioned in the speech, but written in the full Budget document, were plans to increase the headline rate of National Minimum Wage (NMW) by 2.2% to £5.93 in October 2010.
© Crimson Business Ltd. 2010