Budget’s deficit reduction policies should go easy on small firms, says business group

In response to these long-term projections of slower growth, the Forum of Private Business is calling for robust policies in next week’s Budget which reduce the national debt while stimulating small business growth.
 
According to the watchdog, the former administration’s forecast 3.25% growth in 2011 was over-optimistic. Instead, upon revising the figures, it believes the economy will grow by just 2.6%.
 
“These are more realistic projections of growth which reflect feedback from our member businesses and the general mood of the economy at the moment,” said the Forum’s Head of Policy, Matt Goodman. “The Government has a difficult task in this emergency Budget. While addressing the gaping public deficit in order to stabilise the economy must be the first priority this must be balanced with continued support for the drivers of growth – small businesses. Today’s figures from the OBR do nothing but reinforce that fact.”
 
The Forum has submitted its key priorities to the Government ahead of the 22 June Budget. They include:

• Driving growth by improving market conditions
• Reducing the Government deficit, including targeted and measurable public spending programmes
• Providing continuity of government support programmes for small and medium-sized enterprises (SMEs)
• Strengthening traditional sectors with access to new technologies and new markets for goods and services.

 
Mr Goodman added: “With spending as tight as it is, the Government needs to reinforce the concept of helping businesses become better at doing business. That means clear, bold policies designed to foster an environment of better financial management, forge stronger links within the business community and free business owners to choose how their money is spent.”
 
With official figures on inflation, unemployment, production and retail sales set to be published later this week, the Forum’s ongoing research is providing ongoing data about the health of the economy.
 
When asked what the new Government’s immediate priorities should be, 77% of respondents to the Forum’s latest Referendum member survey listed repayment of the national debt.
 
In addition, the Forum’s most recent monthly Economy Watch surveyshows that business confidence is being hit by rising costs, falling turnover and cash flow difficulties as a result of increasing late payment and relatively poor credit conditions. It is also being undermined by uncertainty over likely tax rises and public spending cuts.
 
In all, 37% of business owners surveyed in May 2010 said the cost of doing business – excluding tax – has increased. Almost a quarter (24%) said the tax burden has increased and 28% believe that existing levels of taxation are too high.
 
There are plans to simplify the tax system and reduce corporation tax, but there is also continued uncertainty over whether the lower rate paid by small firms will be reduced alongside the higher rate and whether capital allowances will be curbed to pay for the cut.
 
Further, possible increases in VAT and Capital Gains Tax (CGT) have left business unable to plan ahead with confidence, although the impact of the latter rise could be offset by potentially increasing entrepreneurs’ relief.
 
Other economic indicators in the survey include orders falling for 21% of the businesses surveyed, turnover down for 28% and profitability – including the impact of rising costs – for 37%.
 
Almost one in five (18%) firms experienced increases in late payments in May. In addition, 20% reported that ‘other cash flow difficulties’ are rising.
 
Complying with red tape represents another significant cost for small businesses. In 2009, Referendum looked at the ‘cost of compliance’. It found that smaller employers spend more than £9 billion per year, or an average of 37 hours per month, on meeting their regulatory requirements.
 
The Forum’s key proposals include:

• Clarify corporation tax cuts and changes to capital allowances.
• Capital gains tax: continue the rise to £2 million of the threshold for entrepreneurs’ relief.
• Provide an additional £500,000 of relief for business owners who reinvest in small businesses as part of a private or co-investment arrangement.
• Implement a Comprehensive Regulatory Review hand-in-hand with the upcoming Comprehensive Spending Review.
• Consider helping local authorities set up ‘business engagement’ plenary sessions as a way of promoting dialogue within local economies.
• Consider a community wealth-retention index to help focus public spending and to help identify systematic local and regional issues.
• Make employment law fairer and more balanced, starting with a wholesale review of employment legislation and fundamental changes in the legislative approach to relationships between employers and their staff.

The Forum’s lobbying and campaigns work is carried out as part of its ‘Communications Director’ business support solution. For more information call 0845 612 6266 or visit www.fpb.org/membership.

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