Short-term pressure on businesses eased by Budget

Short-term pressure on businesses eased by Budget

Sharron Gunn, ICAEW Executive Director, reflects on the Budget late last month and the potential impacts for businesses

Prior to the Budget, the chancellor had already warned that there will be another Budget, should the UK leave the EU without a deal. With hints during Monday’s speech that the Spring Statement could become a “full fiscal event”, the likelihood of no-deal seems high. Unsurprisingly, business confidence is low. In fact, it is at its lowest in over a decade, plummeting shortly after the deal was rejected in Salzburg.

Considering the weight Brexit uncertainty carries for businesses, the ‘B word’ was hardly mentioned during the chancellor’s speech. This was a safe and uninspiring Budget – the calm before the storm.

However, there were some good measures announced to ease pressure on businesses for the time being. Business rates and digital tax were hotly debated in the lead up to the Budget; it was widely acknowledged that both must be changed to address the unfair advantage online businesses have over the high street.

Business rates have increased significantly over the last decade, so it was good to see the chancellor addressing this by reducing rates by one third for businesses with a rateable value of below £51,000.

Although this is a step in the right direction, it does not address the fundamental issues that put high street retailers at a disadvantage. Until business rates treat online and offline retailers equally, the decline of the high street will continue.

The digital tax was also introduced, despite the chancellor saying he would have preferred to take collective action with other countries.

The tax will be introduced in April 2020, along with a consultation to consider the details which will apply to search engines, social media platforms, and online marketplaces, rather than being a tax of online sales.

It was a concern that digital tax could disadvantage start-up technology companies, but the chancellor averted this by applying the tax only to those with global sales of more than £500m, which is great news for start-ups and smaller companies in the sector. Start-ups will also benefit from the chancellor’s promise of an extra £200m to the British Business Bank to replace the withdrawal of the European Investment Fund after Brexit, and the extension of the start-up loans scheme to 2021.

It is clear that the UK’s SMEs and start-ups will be more valuable than ever once the UK leaves the EU. Britain has a tremendous pool of talented people whose innovation can help put the UK in a strong position to compete internationally, but those people need access to finance to make it happen.

Replacement of the European Investment Fund was a concern ICAEW has repeatedly voiced in the past year, so it is a relief to see the chancellor announcing plans to fill the investment gap. The increase in the Annual Investment Allowance from £200,000 to £1m is another welcome boost – this will encourage business investment.

Another win for small businesses came in the form of a reduction in the compulsory contribution towards apprenticeships from 10% to 5%. This has clear advantages; business will have increased access to skills. Apprenticeships are valuable for employers who can train their apprentices in their ways of working in everything from their software to their culture and values. Businesses will also see a greater number of professionals from routes other than university, increasing diversity. I am hugely supportive of apprenticeships; the accountancy profession is a prime example of their success and this change will make it easier for smaller firms to participate and see the benefits too.

Despite Brexit looming over the chancellor’s speech, he announced a number of business-friendly measures, and a relatively calm and steady budget. But this is really a ‘holding budget’; a placeholder until the Spring Budget, or potentially a full-blown emergency Budget.

The announcements made on Monday are welcome for the time being, but Brexit is guaranteed to have a full impact on Budget decisions in the near future. This Budget was never going to create waves, but we could see more radical measures next year when we have greater clarity about our divorce from the EU, so watch this space.

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