Business West, the region’s largest business organisation, described Chancellor Philip Hammond’s Spring Budget as “underwhelming” but warned there were some measures that will make firms nervous.
These included the National Insurance increase for the self-employed – which it feared could dampen entrepreneurship – and the impact of business rate rises, despite help for some small retailers and pubs.
James Durie, chief executive of Bristol Chamber & West of England Initiative – which are part of Business West – said: “They say that the Budget is more about political theatre than changing economic reality, and this performance would have had business audiences shifting in their seats.
“This was an underwhelming Budget from the Chancellor, with limited eye-catching announcements and a lack of major changes for businesses to welcome, and a few announcements that will make them nervous.
“In some measure this was forced upon the Chancellor. With Brexit creating considerable uncertainty over the coming two years, it is not a time to spend freely. However, even the Chancellor’s limited wiggle room was smaller than expected – as the medium-term growth projections announced have deteriorated, despite a short-term boost to growth this year.”
Nonetheless, businesses would be disappointed with what was announced, he said.
On business rates, he said: “There has been some shift to ease the pain of business rates revaluation – with help targeted at growing, smaller businesses who are leaving behind small business rate tax relief, a populist handout to pubs and the creation of a fund to help local authorities ameliorate the worst cases.
“However, if you aren’t a pub or don’t qualify for smaller business rate relief, you’ll be left wondering what relief is available to the often sharp increases in tax you will be expected to pay. Many businesses will continue to feel they are being unfairly squeezed by rate rises that do not reflect their ability to pay or their profitability.”
The self-employed had also been targeted with higher tax rates, said Mr Durie.
“With rises in Class 4 NIC. Self-employment falls outside of the government’s election pledge of a ‘tax lock’, so this group now finds themselves targeted as a way to raise revenue.
“The self-employed have been the bedrock of employment growth in the UK since the great recession, and tax changes here may make many nervous. It remains to be seen whether it will dampen entrepreneurship or reduce the incentives to set up business by yourself.
“The introduction of ‘T Levels’ to raise the status of technical and vocational qualifications was welcome, but must be backed by proper resources and reform if the aim of having a higher status to qualifications is borne out in their real-world perception by future employers.
According to Stephen Horton, senior executive with regional law firm Thrings - which has an office in Bristol – while there were no real radical giveaways or headline grabbers, it was clear there was plenty to fuel controversy on both sides of the political divide in the Budget.
Mr Horton, an expert in capital tax planning, taxation of trusts and estate administration, said many self-employed people would have reason to feel sore over the National Insurance hikes.
But he added: “Self-employed workers have, in recent years, benefitted from increases in State pension entitlements which bring them in-line with employed people.
“To outsiders, therefore, today’s announcement could look like a ‘normalisation’ of the current imbalanced system.”
He also said the Chancellor made it clear that there would be further consultation on how individuals who work as contractors through an intermediary private company were treated for tax purposes.
“In an attempt to reduce the benefits of doing so, the dividend allowance was reduced from £5,000 to £2,000 from April 2018. Looking at this alongside the announcement that professional advisors who enable tax avoidance could be subject to severe penalties in future, there was a claustrophobic feel to the advantages these type of consultancy workers currently have,” he added.
Institute of Directors South West chair Nick Sturge particularly welcomed the announcement on T Levels, which are aimed at boosting technical education.
“[The] lack of technical skills, especially in areas such as construction and engineering, is a timebomb waiting to go off,” he said.
“This will be exacerbated by our departure from the EU and a constriction of foreign workers, so it is critical this issue is addressed quickly to mitigate against a short-term skills gap.
“As the South West has one of the lowest levels of young people going into higher education combined with one of the highest demands for skilled engineering and knowledge economy ready talent, T Levels present an exciting opportunity for our oft-forgotten economic powerhouse of the UK.”
He added that setting funds aside for more research & development would help offset any loss of EU finding and secure the role the region’s universities and research institutions play in developing home-grown talent.
Andrew Browne, head of tax at Bristol-headquartered regional accountancy firm Bishop Fleming, said the Chancellor failed to tackle the real issues facing small businesses such as business rates reform, digital quarterly reporting, unfair changes to the VAT flat rate scheme, the widening of IR35 and tax complexity.
However, the Spring Budget meant unincorporated businesses now face a rise in National Insurance and company owners a rise in dividends tax.
“The Chancellor likes detail, and that’s where the devil is,” he said. “The promise of extra funds for infrastructure will help the country, though much more will be needed in time.
“Confirmation that corporate taxes will drop to 17% makes the UK attractive for inward investment, though the disparity between personal and corporate rates will lead to more people setting up companies to take advantage.
“We also need to make the country match fit for Brexit and that means the government seeing the 20,000 pages of legislation as an obstacle to growth; it needs cutting.”
Bishop Fleming welcomed the investment in technical training with new T Levels but was disappointed that there was no commitment to reducing business red tape, or the massive tax hike facing landlords from April.
Federation of Small Businesses (FSB) regional chairman Ken Simpson said the Budget produced “some good news but also had a sting in its tail for many small business owners”.
The good news came in the shape of the government’s commitment to provide more support for those most hit by the recent business rates revaluations, which the FSB had campaigned for, he said.
“We believe that the injustice of the latest revaluation shows that the whole system needs a radical reform but in the meantime we welcome the £435m worth of measures to alleviate the pressure on the hardest-hit businesses,” he said.
“The £300m that councils will be given to help in a discretionary manner is not, however, a huge sum and we must make sure it is not eaten up just by areas of London and the South East, which has had most of the publicity during the current controversy.”
He also welcomed the increase in money to help with productivity, growth and, especially, technical skills and applauded the government’s aim to try and equip youngsters for the jobs of tomorrow to help plug the skills gap that was often identified by FSB members.
“The bad news, however, came with the announcement of increases in National Insurance for many self-employed people over the next two years,” he said.
“Nearly half of all growth in jobs over the past few years has come from people starting and running their own businesses and it is vital for the economy as a whole that we incentivise more people to do this and not place additional financial burdens on them.
“There are so many costs for people who run their own business and to add an extra tax burden now will be seen as an unwelcome announcement by many of our members.”
Lloyds Bank regional director for small and medium-sized banking, David Beaumont, said: “Government spending on infrastructure is a high priority for local firms. When we spoke to South West business leaders at a recent series of events, more than three-quarters said that lack of infrastructure investment is holding the region back.
“Many companies in the South West will also welcome the government’s commitment to boosting skills among 16 to 19 year olds through the creation of T levels and a new £500m per-year investment.
“Businesses have struggled to find people with the right training and skills, with our latest Business in Britain report showing almost a third of South West firms that recruited in the second half of 2016 had difficulty finding staff with appropriate skills.”
