Tweet
The Chancellor's package of support for small and medium size businesses - very much a Cinderella sector in previous budgets - is very welcome, but there are stings in the tail.
Small firms employ 60% of the private sector workforce and many are at risk of being crushed to death as the financial sector crunch crashes into the real economy. The case for offering a lifeline to intrinsically healthy firms, after spending billions of taxpayers' money bailing out the banks, was unassailable, and that is what Alistair Darling has done. But is it enough, and how badly will the clawback hurt firms two or three years down the line?
There has been debate on whether the reduction in VAT which forms the centrepiece of the fiscal stimulus package will be enough to persuade shoppers to delve into their wallets, but for small firms it is a headache: they will have to change prices and alter their IT systems at short notice, then change them all back again in a year's time.
The nitty gritty support for small and medium firms includes a £1bn temporary new finance scheme; a further £1bn of support for small exporters and £1bn of funds to be made available from the European Investment Bank by the end of the year. On top of that, there will be a £50m capital fund providing equity to firms which are over-leveraged; and £25m for "transition funds" to help firms overcome temporary financial difficulties. Better than nothing - maybe much better than nothing, but with 3.6m small firms in the UK the cash might not stretch nearly far enough.
It is good to see the tax and VAT men doing their bit: firms having problems with their bills will be allowed to pay in instalments, and those that have recently fallen into the red will be allowed to offset losses of up to £50,000 against profits going back three years, instead of one year as at present.
Concessions are also being given for business rates on empty property, and husband and wife operators will benefit from the shelving of a clampdown on "income shifting", or moving dividends from one partner to another - normally the wife - who is on a lower tax rate.
The government is also deferring for a year the rise in small firms' corporation tax from 21% to 22% planned for April. Don't get too excited: the rate should not have been increased from 20p in the pound in the first place. Darling should have brought it back permanently to that level.
These measures will go some way to help business owners who desperately need to stabilise their cash flow and keep staff on their payrolls. It was sensible of the chancellor to encourage other banks to follow Royal Bank of Scotland's lead to commit to overdraft pricing for a year, and to set up an independent Lending Panel to monitor banks' activities, though it remains to be seen whether the panel - or his exhortations to the other banks - will be effective.
Large companies have some things to celebrate too: the prospect that rights issues will be made faster and simpler; an overhaul of North Sea oil and gas taxation to maximise recoveries; the reform of plans for air passenger duty which could have hit the airline industry; and a rethink on plans to tax foreign dividends that threatened a flow of company headquarters out of the UK.
Top of many companies' wish lists, however, was a reduction in employers' national insurance contributions - a move that would have helped them to retain jobs. What they got was the prospect of a half percentage point increase in contributions for employers, employees and the self-employed, albeit with concessions to help the less-well off.
It will kick in from April 2011, by which time Alistair Darling expects the economy to be recovering strongly. If the chancellor is being over-optimistic, the rise may hit firms when they are still weak and send them back into the mire. Still, it might not be his problem.
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
