Small businesses are looking for big breaks in 2023 spring budget

As Chancellor Jeremy Hunt puts the finishing touches to his 'budget for growth', what do Britain's SMEs want him to deliver?

Chancellor Jeremy Hunt is set to unveil his spring budget on Wednesday. Photo: UK Treasury

The eyes of hundreds of thousands of small business owners will be fixed on the UK's Parliament on Wednesday afternoon, as Chancellor Jeremy Hunt gives what will be one of the most carefully watched budget speeches in years.

After a year that saw soaring inflation, rising interest rates and ballooning energy bills conflate into a cost-of-living crisis that has weighed on consumers, households and businesses alike, many of those who run small and medium-sized enterprises (SMEs) will see this budget as a pivotal moment.

“Today, we deliver the next part of our plan: a budget for growth”, Mr Hunt is expected to say.

“Not just growth from emerging out of a downturn”.

“But long-term, sustainable, healthy growth that pays for our NHS and schools, finds good jobs for young people, provides a safety net for older people — all whilst making our country one of the most prosperous in the world.”

So, what do SMEs want from Jeremy Hunt's budget?

Basically, SMEs do not want Mr Hunt to make a dire situation worse. Costs relating to raw materials, energy, transport and labour have all gone up rapidly and radically over the past year. What SMEs really don't want is for their tax burdens to increase as well.

Corporation tax rise

However, it's expected that Mr Hunt will go ahead with his plan to raise corporation tax by 6 per cent to 25 per cent for those businesses with profits above £250,000 ($303,145). Up to £50,000, SMEs will pay tax at a rate of 19 per cent and between £50,000 and £25,000 there will be some marginal relief.

Ben Woodhouse is the managing director of Balguard Engineering, a small fabrication company just outside London that designs and installs architectural metalwork, such as balconies, railings and staircases. The company employs 65 people and has been in business since the late-1970s.

“I would very much like him to not put up corporation tax, but I think that’s baked in”, he told The National.

“It feels to me like they’re putting a gun to our heads and saying ‘grow or die’, because all of these things are so draconian and they’re hitting us all at the same time.”

“We will be growing turnover and our contract order book, but we’re going to have to fight so much harder to grow our profitability.”

What potentially could be a double hit for businesses would be a rise in corporation tax paired with the demise of the so-called super-deduction scheme, whereby companies can claim 130 per cent tax relief on capital spending.

The scheme, introduced by Prime Minister Rishi Sunak when he was Chancellor in 2021, expires at the beginning of April and while there is widespread speculation that Jeremy Hunt will announce a replacement, it's by no means guaranteed.

The Confederation of British Industry (CBI) has said that companies would spend an extra £52 billion a year by 2030, if the scheme was replaced by one where firms could claim 100 per cent of capital spending as tax relief.

Brian McBride, the CBI’s president, said the UK will plunge down international rankings for competitiveness if the super-deduction scheme is not replaced.

“Our proposals on capital allowances would free up cash so businesses can invest more, and more quickly”. he said.

VAT cut

While many small and micro (fewer than 10 employees) businesses make profits that incur little or no corporation, they do pay value-added tax.

It's the main tax burden for many small businesses and sole traders, and the perennial calls for VAT to be slashed are particularly loud this year.

“We paid a small amount of corporation tax for the first time last year. Our issue is VAT, as we have another bill of £2,500 this quarter,” Linda Anderson, who runs a bakery and tea room called The Kitchen Croxley in Croxley Green in Hertfordshire, told The National.

“VAT for many businesses like us is a huge cost when ingredients bought in are zero-rated”, she said.

“The nonsense around hot takeaway food costing us 20 per cent VAT must be rationalised. The VAT system needs an overhaul in my opinion, and a reduction for hospitality would be a huge boost to the economy and small businesses.”

“The Treasury needs to listen to what we are saying and not respond with 'businesses can absorb the costs or pass them on to their customers'.”

Business rates

The Federation of Small Businesses has championed proposals to scrap business rates for firms in properties with a rateable value of up to £25,000 a year.

“The biggest thing I think Jeremy Hunt could do would be business rate relief, because the rates are just ludicrous”, restaurateur Adrian Mills told The National.

Mr Mills and his wife own two restaurants called Thai Tho in London, one in Soho in central London and one in the south-west suburb of Wimbledon. He points out that the high rents many businesses in Wimbledon are paying equate to high business rates — so more tax relief is required.

“There are premises in Wimbledon where the rent is over £160,000 a year and the business rates are based on that”, he told The National.

“The business rate relief is currently £15,000. Well, raise it. Do something. An automatic help would be to raise it to £25,000 or £30,000.”

Back to work, but less bureaucracy

One of the main aims of Chancellor Hunt's budget is to get those who are deemed to be economically inactive back into the workforce.

Economically-inactive people are deemed as not in work and not seeking work.

Figures from Office for National Statistics on Tuesday showed the proportion of the working-age population classed as economically inactive fell by 0.2 per cent between November 2022 and January 2023, to 21.3 per cent.

Following the pandemic, there was a spike in people taking early retirement and it is the over-55s that Mr Hunt wants to entice back in the workplace.

According to sources in government, Mr Hunt will promise a growth plan that will remove “the obstacles that stop businesses investing”, while also “tackling the labour shortages that stop them recruiting” and “breaking down the barriers that stop people working”.

Small businesses say it is all very well focusing on growth, but that growth is depend on companies expanding their workforces and bureaucracy is a huge barrier to employing staff.

“Recruitment is one of the biggest issues that we have”, Ben Woodhouse at Balguard Engineering told The National.

“We’re all struggling to find people. Especially companies that are growing like we are. We’ll be almost 100 per cent bigger next year than we were before going into Covid three years ago.”

“For SMEs, the apprenticeship schemes — just simply — are impossible to navigate.”

“If he [Mr Hunt] is trying to incentivise the over-55s, there are two roads he can go down.”

“One is a direct grant to companies, but more likely would be involving training companies and so on, which will not work for us.”

“There is so much bureaucracy involved in getting these things going. I’ve been to three different local training providers for apprenticeships and walked away each time more confused than I went in, and I’ve heard that from several businesses around here.”

Turning the heat down on energy costs

Help with rampant energy costs is an area of special interest for SMEs and one which they are hoping Jeremy Hunt will address in their favour.

A recent survey of SME owners by the small business insurance provider Simply Business found that more than half rank energy costs as the single largest threat to their businesses this year.

Government support is due to switch from the Energy Relief Scheme to the Energy Bill Discount Scheme at the end of the March.

This new scheme is less generous and may lead to a much more challenging environment for SMEs.

“Support with energy costs could prove crucial to their survival”, said the chief executive of Simply Business, Alan Thomas.

Energy bills for Thai Tho restaurant owner Mr Mills have soared over the past year or so.

“We were paying, at one of our restaurants, around £24,000 a year — we’re now paying £80,000,” he told The National.

Linda Anderson, who pays about £21,000 a year for energy at her Kitchen Croxley small bakery and tea room, told The National that assistance with energy costs should be “funded by a windfall tax or redistribution of wealth in some way.”

She would also welcome a plan that allows for small bakeries like hers to be included in the extra relief scheme for energy-intensive industries.

It all comes down to costs

Small businesses are really just asking one thing of Jeremy Hunt: Don't add to our costs.

That is entirely understandable after all the problems that the sector has faced in recent years. First, SMEs were punched by Brexit, then the Covid-19 pandemic landed blows, followed by soaring inflation and borrowing costs.

All SMEs ask is that the Chancellor makes some effort to protect them from the continued economic assault and doesn't join in the pummelling.

“I think this budget is critical, absolutely critical. This really is a make-or-break budget, because there has to be an element of light at the end of the tunnel,” Thai Tho's Mr Mills said.

“From April, you will see an awful lot of businesses saying ’do you know something — I gave it my best shot; I just cannot afford to keep throwing money into a black hole’.”

“There has to be an incentive for people to keep going,” he added.

“A friend who owns a shop said to me the other day: ‘I’m not living, I’m surviving. Because every day I wake up and I’m in a state of stress and anxiety, because I don’t know what the day’s going to hold, and I can have days when I only have one or two customers come through the door’.”

There is some hope in the small business community that Mr Hunt understands their plight. After all, at one point in life he was one of them — in the early 1990s he was an entrepreneur trying out a string of start-ups, including one which aimed to export marmalade to Japan.

While that venture failed, UK SMEs are hoping that Wednesday's spring budget is not just all about jam tomorrow, with none today.