What Does The Budget Mean For SMEs?


"This is a big Budget for a country with big ambitions," chancellor George Osbourne crowed in the Commons this week. It was certainly big talk - but would it help the little people?

We examine how Britain's small and medium-sized businesses are likely to fare in his new financial plans. Of course, headlines have been dominated by the surprise announcement that a National Living Wage will replace the £6.50 minimum wage, forcing SMEs to up employees' pay packets to £7.20 an hour by April next year, and rising further to £9 an hour by 2020.

The Forum of Private Business (FPB) reacted angrily to the news, taking to Twitter to insist: "Timing of national living wage could not have been worse with small SMEs dealing with costs of auto-enrolment." The government was quick to point out a 50% increase to the national insurance employment allowance from £2,000 to £3,000, to offset the impact of salary hikes.

This, it said, will mean small firms can employ four workers full-time on the new Living Wage, without paying any NICs. But, speaking to The Guardian, John Allen from the Federation of Small Business said some small firms would still find the wage rise "challenging".

Emma Jones, founder of Enterprise Nation, was even more damning. In a blog post entitled 'Small Businesses Deserve Better' she argued it could be a "tragedy" if the result was to push small-scale manufacturing abroad. Osbourne's other Budget promises were summed up as a "mixed bag".

Cutting the rate of corporation tax to 19% in 2017 and 18% in 2020 was acknowledged as a step in the right direction (although for SMEs that only generate a marginal profit the impact will be small, we expect). This was "tarred", however, by the tax rises in dividend moves and removal of the Employment Allowance.

Jones was also upset about the things Osbourne didn't mention: the prime minister's pre-election commitment to driving government spend with small business to 33% and making childcare costs a tax-deductible expense for the self-employed.

She concluded: "Despite the fact the small business vote was instrumental – if not the deciding factor – in a Conservative majority, those same small businesses and the backbone of the British economy were not sufficiently rewarded in today’s Budget."

Others were less critical, although far from enamoured. Talking to The Telegraph, Ed Molyneux, CEO and co-founder of accounting software provider FreeAgent, accused the government of being biased towards "very large companies or smaller businesses who are already enjoying success and are ready to grow". He concluded: "For the average freelancer, contractor or startup business, there's not much to get excited about."

Clearly extended Sunday trading was something to get excited about, by contrast - at least if the media debate in the lead-up to Wednesday's Budget was anything to go by. In the end, Osbourne devolved the decision to lengthen trading hours to local councils. The Federation of Small Businesses had warned that any change could harm small firms, and reacted post-Budget by imploring local decision makers to include SMEs in discussions before making rash decisions. James Lowman, chief executive of the Association of Convenience Stores (ACS), was also worried.

He told The Guardian: "Giving local authorities the responsibility for setting Sunday trading hours will lead to inconsistency and confusion for businesses and shoppers. In areas where large stores' trading hours are extended, we will simply see the same amount of trade spread over more hours and shifting from small stores to large stores."

Access to finance was an area we, at Merchant Money, were particularly keen to hear more of. Here Osbourne promised to force banks to share their SME credit information to give businesses who have been refused loans a better chance of securing one. Details will be passed to online platforms, for example, who may be able to pair small firms with alternative finance providers.

You can read the Budget in full on the gov.uk site here, as well as supporting and related documents.

If the 123 pages seem a trifle long, check out Enterprise Nation's brilliantly concise breakdown of the key points for SMEs. They've stripped it back to 13 crucial ways it could affect your business.