Alistair Darling has warned us to expect a ‘workmanlike’ speech. Commentators spoke of a ‘phoney Budget’; Nick Robinson, the BBC’s political editor, said he’d overheard chatter in the chancellor's office earlier this week that there was "no need for a Budget" at all since all the important decisions on tax and public borrowing had been made during the pre-Budget report. Despite inevitable pressure to offer some sweeteners to voters, including business owners, this was the first budget for a while in which entrepreneurs might broadly have been in sympathy with the City in wanting details of how the budget deficit would be tackled.
While Darling spent the majority of his hour-long statement explaining how he’d cut government borrowing, predictably, the immediate reaction from Labour's critics was that it was a Budget long on political posturing and short on the details that would fill the black hole in the nation’s finances.
On the other hand, some will be surprised by the number of unexpected measures Darling unveiled that were intended to help small and medium-sized businesses (especially since the small print says BIS will actually be saving £230m). There was no movement on the controversial increase in National Insurance Contributions (NICs), but he did announce a handful of other measures, including plans to double the 18% CGT taper relief threshold to £2m, cut business rates for 500,000 small businesses for one year from October and a £500m Growth Capital Fund to invest in small, growing businesses. What did you make of the measures? To find out how the budget went down with the UK’s small business owners, we asked a handful of entrepreneurs for their reactions:
General reaction
Stephen Bentley, chief executive at Granby Marketing Services: “It worries the hell out of me that the deficit is currently 11.8% of GDP and that this will only get worse with higher unemployment. The reality is that I don’t see this Budget stimulating many new jobs. There nothing in there for me to say, ‘if you take on extra people, we’ll give you more support’.”
Charlie Mullins, managing director, Pimlico Plumbers: “Basically the chancellor has produced a grossly political Budget, so cynical was he that he explained away his lack of spending cuts by saying they would 'derail the recovery' right now, but almost in the same breath said that they would be necessary in the future – conveniently, after the election. At certain times I thought maybe it was George Osbourne giving the speech there were so many Tory policies coming out, although crucially none on spending cuts!
“There was nothing in it that improved the condition of my business, my workers' incomes or my own prospects. You cannot pay for high spending with low tax and he just does not want to lower spending. Quite honestly the chancellor has failed to balance the books. He's not even close. As far as I can see the only improvement in the figures comes from bad forecasting - the Met Office are more accurate than the Treasury.”
Brad Burton, managing director, 4Networking: “I really approve of the measures which Alistair Darling has outlined to help small businesses grow. I would have added scrapping NICs for the first three years for new businesses, funded by some of the taxes that have been claimed from the bailed out banks. Small businesses are crucial for economic growth and I really feel that Darling has recognised that with his reduced rates and increased investment allowance.”
David Soskin, chairman, MySupermarket.co.uk: "This was a political budget designed not to create waves in the run-up to an election. It does little to tackle the dreadful state of the public finances. As usual, it betrayed the acute schizophrenia from which the Labour Party suffers when considering enterprise.”
John Cheney, CEO, Workbooks.com: “I think the bottom line for businesses in this budget is that it’s along the right lines but it needed to go further. Maybe the reason it didn’t do that is because there’s bound to be a certain amount of electioneering going on so close to an election, but it will be interesting to see how the measures actually come to fruition.”
Christian Arno, managing director, Lingo24: “The move on business rates, relief on capital gains tax and a doubling of the annual investment allowance are small measures, but added together, they make the entrepreneurial game a more attractive one. The additional support – from the Growth Capital fund to the commitment to award 15% of government contracts to UK SMEs – are also very helpful. All this said, we think this country will not start motoring economically (at least not in a sustainable way) until we as a nation are much more export-focused, like successful modern economies such as Sweden and Switzerland.”
Julie Meyer, chief executive, Ariadne Capital: “The best way to grow the economy is to grow the pie of revenue which is taxable, not grow or maintain tax at a high level on revenue which leads to a shrinking pie. If we lower tax, we create confidence and expectation of economic recovery - oxygen - to/for the economy. It seems to me that the elephant in the room is that we are just expecting the UK entrepreneur to work to grow revenue for taxable income but if he/she has a weight around their neck in terms of already too high NICs and other levels of regulation and tax, how can they compete in the marathon which is business?”
Jamie Murray Wells, founder of Glassesdirect.co.uk and Chairman of Hearingdirect.com: "Until this government faces up to the deficit burden it has created (£6bn to £167bn in 13 painful years) and swallows the bitter pill it needs to credibly reduce this, Britain will never be as stable and attractive a place as it could be to invest and do business in. Some of the specific measures Mr Darling mentioned such as enhancing Entrepreneurs' Relief and cutting corporation tax, are steps in the right direction but both Brown and Darling must address the elephant in the room.’
On the cut in business rates for 500,000 small businesses for one year from October
Roger Taylor, managing director, Cambrian Associates: “This is a must, but does it go far enough? Most SME owners feel that they are being robbed, not just by their councils, but by HMRC.”
David Soskin: “Business rates are a dark cloud for many entrepreneurs so it is welcome that at this time of crisis many will have to pay no business rates next year.”
On the new credit adjudication service
David Soskin: “It is good that Darling is encouraging the banks to lend more to small businesses but his idea of an office of fair lending sounds a bit daft and an excuse to create another quango.”
On the £500m Growth Capital Fund and new umbrella organisation UK Finance for Growth to simplify access to funding
Jake Allen, founding partner of King & Allen: “While I was glad to see a £2.5bn to boost small businesses' skills and innovation, that money is only as good as its use is efficient. Government bureaucracy will inevitably create a degree of waste. That cash should be used to directly benefit small business in tax relief, rather than a series of top down prescribed initiatives. Freeing up the resources of business owners is the best way to ensure those extra resources are used as efficiently as possible.”
Hugh Robertson, founding partner and CEO, RPM: “I’ll be interested to see how the £2.5bn growth fund actually manifests itself, whether there will be real tangible action or whether this will be spent on initiatives like the business tsar Sir Alan Sugar which haven’t had a direct impact on small businesses. In an ideal world I would like to see the government appoint some more regional ambassadors within individual business sectors to champion needs and ways to help businesses in that sector succeed. People closer to the ground would be better able to identify where government budgets could be most effectively spent; one person, in this case a business tsar, simply cannot do the job of many.”
On the agreement that Royal Bank of Scotland and Lloyds will lend £94bn (gross) over the next year with at least half going to small and medium-sized firms
John Cheney: “It is debatable if this is extensive enough to help these businesses. What was really needed were drastic changes to the Enterprise Investment Scheme (EIS) so that if banks aren’t supporting SMEs sufficiently then business angels can. The government should have improved tax breaks under the EIS to encourage even more angels to invest by removing the limits that individuals (currently £500,000) and companies (£2m) can raise in any one funding round.”
Piers Linney, joint chief executive, Outsourcery: “The reality of the budget is that the post recession appetite for risk has changed and many small businesses are now very much at the wrong end of the adjusted risk spectrum. Banks are still withdrawing capital so the focus should be on the net increase in debt finance made available to small businesses. £47bn of lending from RBS and Lloyds is still a limited commitment given the size of the problem and what is perceived as riskier lending will no doubt come at a price in terms of higher interest rates and fees. Will what the banks have to offer actually be attractive to small businesses? It will be very interesting to see just how much this government or the next actually coerces the banks to put their balance sheets to work by extending credit to small businesses and the concept of a new ombudsman with the power to overrule a bank’s credit committee will lead to some interesting new lending relationships.”
On the decision to stagger the increase in fuel duty
Charlie Mullins: “The rise in fuel duty, although incremental, will have a huge negative effect on businesses. When I filled up yesterday it was already 118p a litre – how is a further rise going to help the country? A fuel duty hike will give inflation a kick as products, from newspapers to food, will all be affected by this rise.”
On the plans to double the 18% Capital Gains Tax (CGT) ‘Entrepreneurs’ Relief’ threshold to £2m
Charlie Mullins: “It’s the role of businesses to create employment, but I can’t see anything in this Budget that will help my business, or any other, grow. Nothing makes this point more than the increase in the ‘entrepreneurs’ relief’ for CGT; we should be encouraging investment, not disposal.”
On the personal tax allowance being tapered down – in effect increasing the amount of tax they pay – for those earning over £100,000
David Soskin: “This, in addition to the already announced 50% tax rate on earnings over £150,000 is gesture politics at their worst. Not only do high-earners often invest valuable seed capital as business angels, this makes it even more likely that these people, many of whom are huge wealth-creators, will simply pack up and leave, just as they did in the 60s and 70s.”
On the doubled annual investment allowance, to £100,000
John Cheney: “Raising the investment allowance is pointless when small business owners have no spare cash to take this up.”