By Oliver Deed
If you read the headlines this morning, you will know the fall out from the Budget has been somewhat fiercer than usual. A Budget that leads to the resignation of a senior cabinet minister can be judged, from a public relations perspective, as a failure. Rather than extoling the virtues of the Budget to the electorate, the Prime Minister and Chancellor will spend the next few weeks containing the damage. The disappointment emanating from the Treasury is almost palpable.
For new and growing companies in London, the internal machinations of the Cabinet and Conservative Party are likely to be of little to no interest. For this Budget contained quite a substantial amount of policy meat for small businesses.
There were moves on Business Rates and Corporation Tax that have been widely welcomed, and a host of other measures that will impact on the future of small businesses. On Business Rates, the Chancellor raised the threshold for small business rate relief from £6,000 to £15,000 rateable value (RV). That will represent a tax cut for 600,000 small businesses that will now pay no business rates at all. The threshold at which the high rate business rate multiplier kicks in was also increased from £18,000 to £51,000. Overall, this will have a big impact on small businesses and cost the Treasury around £2bn per annum by 2020.
To complete the sweep of tax cuts, the Chancellor is abolishing class 2 national insurance contributions for the self-employed by April 2018.
The Budget also contained announcements on Corporation Tax and Capital Gains Tax. The former will be cut to 17% by April 2020, an acceleration of the previous programmed, and the top and basic rates will be cut by 8% each to 20% and 10% respectively, effective as of April 2016. To complete the sweep of tax cuts, the Chancellor is abolishing class 2 national insurance contributions for the self-employed by April 2018, and the income tax threshold will increase to £11,500 by April 2017. The higher rate threshold will also be increased from £43,000 to £45,000 in the 2017/18 tax year with a promise of more action to come in the future.
Entrepreneur’s Relief was also extended to allow entrepreneurs who have long-term investments in unlisted companies meaning a preferential tax rate of 10% will be levied on gains of up to £10 million with further detail to be published in the Finance Act.
The Budget was widely welcome by advocates and organisations representing small businesses. Emma Jones, founder of Enterprise Nation, told the Financial Times the Budget was ‘incredible’ and the Federation of Small Businesses echoed this.
So for the time being, we are entering a post-Budget period of uncertainty.
However, the fall out from Iain Duncan Smith’s resignation promises to throw a spanner in the works. The Government U-turn on plans to cut the Personal Independence Payment has blown a £4bn black hole into the Government’s Budget calculations, and the Treasury will have to plug the gap, either by raising more revenue (through tax increases, or the cancellation of a planned cut) or through further cuts to public expenditure.
So for the time being, we are entering a post-Budget period of uncertainty. The measures outlined are, on the face of it, positive for small business but will they survive Treasury’s efforts to plug the £4bn it cost to U-turn on PIP? And can the Government get the numbers to get the Finance Bill passed, with such a slim majority, as backbenchers flex their muscles? Small businesses will be watching with interest.
Oliver Deed is an Account Director at Snapdragon Consulting