The 2012 Budget: What’s In It For SMEs?

Budget 2012

George Osborne said his 2012 Budget will “reward work” and “unashamedly backs business” but do his actions speak as loud as his words? In this post I examine what’s in the red briefcase for SMEs and more importantly, will it make a difference?

Broadband investment

This week the BBC reported that “the UK is the ‘most internet-based major economy” and is “predicted to grow at a faster rate than in the US and China”. This news was backed by a budget that pledged to fund faster broadband and Wi-Fi in the UK’s 10 largest cities.

It’s great to see that we will soon be able to compete with the rest of Europe and the US, but the rural areas are the most deprived and need infrastructure, otherwise another divide is being created. In answer to this concern, and recent media reports that “the UK faced connected-home challenge”, the government announced a £50m investment for smaller cities to connect to ultra-fast broadband, I’d like to see it go one step further and commit to a basic level of UK coverage.

Sunday trading

A positive point for SMEs, especially those in the retail sector, is the news that legislation is set to be relaxed for Sunday trading laws on eight Sundays during Olympics and Paralympics, starting July 22. The longer trading hours gives physical retailers a better chance to compete with the increasing move to ecommerce which is available 24/7.

Following the Art Laffer model

Art Laffer, a former adviser to Ronald Reagan, hypothesised that the tax rate that maximises revenue was at a much lower level than previously believed: so low that current tax rates were above the level where revenue is maximised. He believed that by lowering the tax rate growth, jobs and overall prosperity would increase.

It would appear that this is something that Mr Osborne is working to in his statement to reduce corporation tax to 22% by 2014 (18% lower than US, 12% below France and 8% below Germany). However, I believe this should be reduced further for smaller businesses, for which tax rates are prohibitive.

Enterprise loans

Mr Osborne announced that the government would be, “exploring the idea of enterprise loans. Young people get a loan to go to university or college. We now want to help them get a loan to start their own business.” This sounds like a great initiative to support young people who want to set up their own business but it’s crucial that the idea is backed up by training and support – adding an entrepreneurial element to the education system is fundamental.

Simplified taxation

A simplified tax system for small firms with a turnover of up to £77,000 is a nice idea but this is only applicable for extremely small businesses of one to two people. I’d like to see some relief for SMEs who sit more in the £77k to £5m t/o bracket; realistically, this is where the real job creation will come from.

What’s missing? Jobs and growth

The budget should have included a national insurance holiday for all companies with more than 5 employees and looking to grow and hire more people. This would have made significant difference to not only SMEs, who are looked at to grow the UK’s economy, but also to the ever-increasing levels of unemployment.

It is unfair that SMEs carry the tax burden of the corporates who negotiate their tax rate, just as the middle income do for very rich with their tax avoidance schemes. The Stamp Duty loophole has been addressed with the threat of those buying a home through a company being forced to pay stamp duty of 15pc, but we need to see this type of crackdown on the larger enterprises who employ teams of accountants to negotiate lower rates of tax while SMEs pick up the bill.

One issue that needs investigation is the lack of lending from banks to SMEs. Why is this? Are the banks making it too hard for SMEs or are SMEs concerned about getting into debt? If the problem is the former, then banks who aren’t meeting their lending targets should pay a penalty tax which is used to fund a peer to peer lending initiative to plug the gap in funding. If it’s the latter, then SMEs need education from banks and fellow SMEs that a manageable level debt is good; it enables growth and allows for forward investment in staff and infrastructure.

Tim Walker is the Founding Director of Iconnyx, a company dedicated to providing quality, reliable and secure managed services to the business marketplace. With many years experience in the IT sector, working for companies such as Interglobe, Redstone and as Sales Director of Centric Telecom, Tim has extensive knowledge in telecoms managed services, managed IT services, Internet connectivity and managed hosting.