Rishi Sunak must ‘press the reset button’ on small business support

New Prime Minster Rishi Sunak must take swift action to win back the favour of small businesses and contractors in the UK, according to Seb Maley, CEO of IR35 specialist consultancy firm Qdos.

Maley argues that the UK’s smallest businesses need urgent support to mitigate the government’s pursuit of a “potentially disastrous” corporation tax rise and its decision to U-turn on repealing IR35 legislation.

“The government must press the reset button and rethink how the UK’s smallest businesses are treated,” he says.

“At a time of such uncertainty, the Prime Minister would do well to consider just how important independent workers are to the economy.”

Sunak must act ‘immediately’

On October 17, three days after being appointed Chancellor, Jeremy Hunt delivered a surprise economic statement effectively reversing the raft of measures outlined by his predecessor in September’s mini-Budget. This included reversing the decision to repeal the 2017 and 2021 reforms to the IR35 off-payroll working rules – a manoeuvre that was met with scorn from small business advisers and contractors.

Maley says that the incoming prime minister must, therefore, address this publicly and provide an explanation of why the proposed repeal was scrapped.

“At the very least, the government must review IR35, its flaws, and crucially, the issue of zero rights employment.”

Sunak must also begin work “immediately” to mitigate for the “short-sighted tax grabs” he introduced during his tenure as Chancellor, Maley says.

“Rishi Sunak won’t have many supporters in the small business community, particularly among freelancers and contractors, who have borne the brunt of many tax changes introduced when he was Chancellor

“The Prime Minister has a long road ahead to win the support of the self-employed, but the work must start immediately.”

Fiscal caution ‘desirable’

However, Charlotte Sallabank, partner and head of tax at Katten UK, notes Sunak’s “very cautious” approach to tax cuts during his leadership campaign earlier this year, arguing that this may now be perceived as a necessary injection of stability.

While it seemed to lack the “x-factor” in comparison to the swathe of tax cuts promised by fellow candidate Liz Truss, this approach is “much more desirable and likely to prove acceptable to parliament and the public given the current market turmoil”, she said.

Sallabank also highlighted the potential significance of Sunak retaining Jeremy Hunt as Chancellor, arguing that this “should help to enable” a gradual recovery from the economic slump triggered by Kwasi Kwarteng’s mini-Budget in September.

In addition to the planned repeal of the IR35 reforms, Kwarteng’s measures included the cancellation of the planned corporation tax hike (from 19 to 25%), a cut to the basic rate of income tax, and the removal of the 45% top rate of income tax for high earners.

Three days after the statement, the pound dipped to an all-time low against the dollar. In response, the Bank of England took the decision to launch an unprecedented temporary bond-buying programme in a bid to stabilise the markets.

‘A safe pair of hands’

The markets responded positively to Hunt’s appointment and subsequent fiscal statement, indicating that his retention by Sunak could help set the stage for a steady recovery.

Looking ahead to the Budget on November 17, Sallabank points out that, despite the change in leadership, any significant changes to fiscal policy are unlikely given the shared economic prudence of Hunt and Sunak.

“The measures that Jeremy Hunt announced last week, where he reversed most of the September ‘mini budget’, are in line with the fiscal policy that Rishi Sunak himself adopted when he was Chancellor,” she said.

Lee Murphy, managing director of The Accountancy Partnership also acknowledged Sunak’s track-record of fiscal restraint, arguing that he may be perceived as “a safe pair of hands” by struggling businesses.

“Rishi Sunak gained profile during the pandemic as the person who led the financial support for struggling businesses and employees.

“There’s been a lot of turbulence in recent weeks, and what every business desperately needs right now is stability.”