More budget response from small businesses

Almost half the small businesses surveyed by the Forum of Private Business are pleasantly surprised by the Budget but some fear tax rises and other concerns could lead to a double dip recession.

In all, 47% of respondents believe that policies announced by the Chancellor George Osborne are better than expected but 11% feel they are worse and could plunge the economy back into recession. According to the survey, retailers are least satisfied with the VAT increase, which is also the top concern of hairdressers surveyed.

“Many entrepreneurs feel this Budget has given their businesses a timely boost – particularly in reducing red tape and tax cuts and the proposals for an overhaul of business taxation,” said the Forum’s Research Manager, Tom Parry. “But concerns remain over the VAT increase, bank lending, the impact on job creation of the National Insurance rise, public-sector cuts and areas of government support. The result of the coalition Government’s first test appears to be that it has passed but is not yet achieving top marks.”

The decision to partially reverse the planned increase in Employers’ National Insurance contributions (NICs) in 2011 is one of the most popular measures. However, some business owners are concerned that, together with the impact of the 2.5% VAT increase and reductions in capital allowances, it could still prove to be a barrier to taking on staff.

Small businesses have welcomed the reduction of the lower rate of corporation tax from 21% to 20% in April 2011 and the Chancellor’s pledge to carry out a root-and-branch departmental review of red tape affecting smaller businesses.

Further, they applaud the Government’s decision not to increase fuel duty at the present time, restrictions in government spending, the promise of a new capital growth fund, the introduction of a bank levy based on lenders’ balance sheets and the extension of the Enterprise Finance Guarantee scheme, which has been increased by £200 million and the application process reduced to 20 days.

Following the rise in the entrepreneurs’ relief threshold to £5 million, more businesses feel that increasing high earners’ Capital Gains Tax to 28% is beneficial than believe it is damaging.

In addition to the VAT increase, the least popular measure identified by small businesses is the decision to reduce allowance, including the main and special rate of capital allowances to 18% and 8% respectively and in the Annual Investment Allowance from £100,000 to £25,000. Both are scheduled to take place in April 2012.

Entrepreneurs who took part in the survey scored the success of the Chancellor’s own stated objectives, based on the criteria ‘successful’, ‘unsuccessful’ and ‘neutral’:

- Reducing the deficit (84%)

- Supporting enterprise (39%)

- Fairness (37%)

- Creating a stable and certain business climate (29%)

Some business owners are urging the Government to prioritise other areas of concern, including continued restrictions in affordable bank finance – the most frequently mentioned single issue.

They have also called for an even greater focus on cutting and simplifying red tape aligned to the Forum’s suggestion of a Comprehensive Regulatory Review, greater penalties for late payers, rogue traders and ‘phoenix’ administrations, specific schemes to tackle unemployment – particularly those helping jobless people to learn trades and crafts and allowing public sector workers to start businesses – and exploring alternatives to business rates in order to minimise the impact of VAT on high street businesses.

Further, small businesses want industry-specific measures to improve the car industry, housing market, retail and construction sectors.

Manufacturers are concerned at the reduction in capital allowances and annual allowances and some construction firms about the impact of public sector cuts on schemes such as Building Schools for the Future (BSF).