Pre-Budget Report and small businesses

Small businesses are facing “continuing difficulties over cash-flow and credit” said the chancellor. And he had some intriguing measures to lighten the load in his pre-Budget report:

•    A temporary increase in the threshold for empty property relief.
•    Tax exemption for foreign dividends – but not for small firms.
•    HMRC will allow firms to spread the cost of their tax bill.
•    Losses made up to three years ago of £50,000 or less can be discounted against this year’s profits.
•    Credit will be made available via a £1bn state lending scheme. Loans of between £1000 and £1m will be available for small firms.
•    Exporters will get another £1bn of credit guarantee support.
•    European Investment Bank to offer £4bn in funding for SMEs.
•    Small firms corporation tax rise delayed by at least a year.

In total, Darling told the House, small firms will receive an extra £7bn in support.

So how will these schemes work in practice? The export credit plan is straightforward. As is the very welcome exemption for foreign dividends. But the plan to allow delayed payment of tax to HMRC. How will that work? Will firms simply put the money they owe the taxman into a high interest account?

Allegedly only “struggling” firms will be eligible – but who is to decide whether a firm is eligible? We are told there will be a “dedicated phone line” for troubled firms to ring. Relying on the generosity of the HMRC flunky manning this hotline is not something small firms will relish.

And the new £1bn in loans. Banks will issue the money, which will be guaranteed by the state: exactly like the Small Firms Loan Guarantee Scheme.

But how will the new scheme work? Won’t credit worthy firms hoover up the money, leaving start-ups and struggling firms out in the cold? Tough to see how this is going to work in practice.

The relief on empty property rates is most welcome. The appalling sight of offices being demolished to avoid paying rates won’t end, but will be diminished by this action. To what degree will depend on the rates, which, as yet, have not been published.

But the real kick in the guts is the National Insurance increase of 0.5 per cent. For low paid workers this is in effect an income tax rise. Employers will be under pressure to compensate their workers for this rise.

The theme of this budget for small firms was: you’ll get help, but only when you are making losses. Darling will forgive small business owners if they don’t crack open the bubbly.

BUDGET FLASHBACK: At the last budget Alistair Darling promised a venture capital fund for women-run businesses. The problem? The policy is against the law.

Two weeks after his 2008 budget I asked Darling how this fund would work. How would “women-only” be classified? Majority shareholding? One woman on the board? Darling looked blank. His special advisor sourly interjected: “He hasn’t been briefed on the details.”

Turns out no one had been. Equality legislation requires funding to be gender blind. Darling can no more create a fund for women than one for whites or Sikhs.

So the Women’s Investment Fund will be available to all-male firms. Small business minister Shriti Vadera says she’ll be happy if applicants have 30 per cent female boards or 30 per cent of senior executives are female. With no ability to discriminate in favour of female firms, Baroness Vadera is relying on pure serendipity to make this happen.

With a paltry £12.5m to invest the government was never going to transform the VC scene. But by failing to ensure this money will end up with its intended recipients the government is left looking like a foolish investor before a penny has been handed out.

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By Charles Orton-Jones  on   Nov 25,2008

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Keywords

Alistair Darling    pre-Budget report    tax    economy    small business   

Comments

Steve B
And what about the 18.5% VAT rate after the next election? Report Abuse