“Osborne’s pledge to reduce the budget deficit by focusing on lowering public spending rather than increasing taxes wasn’t demonstrated by what many commentators would agree was the focal point of today’s Budget – the increase of VAT to 20 per cent.
“This measure, whilst predicted to generate some £13 billion* a year in additional revenue, could have serious repercussions for some firms, forcing them to dig deeper into their pockets to pay for supplies for their business. Whilst many of the larger businesses can afford to absorb this cost, some of the smaller players, particularly in those industries which adhere to tight profit margins, simply cannot afford to subtract an additional 2.5 per cent from their profit and loss account.
“In addition, the hike will do nothing to stimulate spending in the economy and may have a negative impact on consumer confidence, which is absolutely crucial during times of uncertainty. With economic growth still at a marginal level, the Government must be cautious over the prospect of a double-dip recession.
“However, Osborne’s Budget did have a number of positive ramifications for small and medium-sized businesses, and many of the measures introduced will actually be of great benefit. The fact that small business rate relief will be increased from October, meaning a tax reduction for 500,000 small firms, should be applauded, whilst his creative pledge to support start-up businesses in regions outside of London and the South East by giving them a NI ‘holiday’ for the first year of trading is well received. This should hopefully stimulate business start-up rates in regions which have previously been fairly stagnant.
“Access to finance remains a key concern for small businesses looking to raise capital to fund growth, and the extension of the Enterprise Finance Guarantee means businesses will continue to receive support when seeking finance. However, the Government must seek to communicate the accessibility of this scheme to the wider business community.
The introduction of a bank levy may force UK lenders to take a risk-averse approach and limit the level of funding available to small and medium-sized businesses, meaning these firms will again struggle to raise finance. Broadly speaking, it’s reasonable to say we haven’t seen any major surprises, and Osborne’s pre-Budget pledge to be ‘tough but fair’ is what has been delivered.
Posted on 22 June 2010