It was a budget many businesses watched carefully with bated breath. The immediate challenges facing the UK economy will be most significant for SMEs, but big business may feel left out of the picture in that regard. Longer term, the big spending pledges will be raising eyebrows of exactly how this will all be paid for.
COVID-19
Wherever you go, the Coronavirus is at the front of everyone’s minds- and this budget was no different with an initial £30bn package pledged. By comparison, last week the US signed off a package less than quarter of this size at $8.3bn, and Italy as one of the hardest hit is spending €25bn.
The Chancellor was keen to stress the significant but temporary impact of Coronavirus on people, place, business and public services. Much of the measures are intended to be temporary, but speak of a Government that is willing to intervene and to do “whatever is necessary”. The business measures, working with the Bank of England, intend to ensure that the temporary impacts of the supply and demand side shocks do not become permanent.
SMEs were a primary focus given they are likely to be hardest hit, with access to cash and staff support at the forefront. Businesses with less than 250 employees can have 14 days of statutory sick pay for employees who are off work with Coronavirus refunded by the government. The “Time to Pay'' scheme is being scaled up, with a dedicated phone line and some 2,000 members of staff. A new temporary business interruption loan scheme will be put in place for loans up to £1.2m from £1bn of working capital loans. Government will cover bank losses up to 80%, but what we need to understand is how quickly and efficiently these loans can be administered. As an SME whose cash flow is day to day, 14 or 30 days to receive funds may be too late.
Business rates were expected to be a huge topic in this budget, but not quite in this fashion. Rishi announced a temporary abolishment of business rates for small businesses in retail, leisure and hospitality with premises that have a rateable value up to £51,000. This means that those sectors likely to be hardest hit by self-isolation measures such as gyms, cinemas, shops and bars will see their tax liabilities lowered. This feeds into a wider consultation on business rates, which ICAEW believes need a significant shake up. For those small businesses who do not pay business rates, they will receive a £3,000 cash grant to help smooth these expected cash flow issues.
For people, there are a range of measures to provide security and support to those who need it most. These social measures such as statutory sick pay from day one and removing the minimum income floor for universal benefit are a positive step for the resilience of a bigger-than-ever workforce.
What we are hearing now is that businesses want support on resilience, contingency planning and working practices. Those that take this as an opportunity to revolutionise their processes and delivery will do well; digitalisation of interactions both internally externally represent significant productivity and green gains, and may well create lasting changes in how we do business.
This Budget is welcome in terms of cash flow and social security, but it only represents part of the challenge. To this end, we’d recommend keeping an eye on ICAEW’s Coronavirus Hub, which collates resources on the wide range of challenges businesses will face.
Entrepreneurialism and blue-sky thinking
After the special Coronavirus measures were announced, the Chancellor moved to the main business of the Budget. SMEs featured heavily again across a range of the policy areas as he set out his aims for the UK to recapture its “spirit of ideas”. The much-discussed changes to Entrepreneurs Relief were an anticipated headline as the relief was not entirely scrapped: instead the lifetime limit has been reduced from £10m to £1m. Whilst this will be welcome for those who expected it to be scrapped, we could see a reduction of investment into start-ups as financiers reassess their exit strategies.
To somewhat counter that, the Chancellor also announced an additional £200m for the British Business Bank to invest in scale-ups. £130m of new funding for start-up loans was also announced, and in line with the Government’s drive for more exports an additional £5bn for export loans was also added. Regionally, the £10m increase in Growth Hub capacity is welcome, and ICAEW members as trusted advisors in and for businesses should see these as an opportunity.
The ramping up of R&D to £22bn per year by 2024-25 is set to put the UK ahead of the US and China in terms of spend as a percentage of GDP. This matches the Government’s ambitions for the promotion of the UK as a place of innovation, but the administration of these funds is crucial. If the Government is investing in efficiency, it needs to be administered efficiently. Also part of this package was some £1.4bn to the Science Institute, a £900m injection into nuclear fusion and electric vehicles and £800m for a blue skies funding agency to compete against the US’ Advanced Research Projects Agency (ARPA).
