The new UK coalition Government has, as expected, announced huge public spending cuts aimed at reducing the country’s massive debt. Did you know that the UK has one of the biggest budget deficits in Europe? The cuts will total £6.24bn in this financial year alone and we thought it would be interesting to gauge the differing opinions about the impact they might have on small businesses.
Some organisations foresee strong private-sector-led recovery
Organisations such as the Confederation of British Industry (CBI), the British Chambers of Commerce (BCC), the Federation of Small Businesses (FSB) and the British Retail Consortium (BRC) have cautiously welcomed the Government’s actions. They believe that reducing the budget deficit will help to rebuild confidence in the economy and kick-start recovery.
Richard Lambert, director general of the CBI said, “"We have been calling for a strong focus on deficit reduction to underpin the UK's fiscal credibility and position us for a strong private-sector-led recovery”.
What about help for small businesses?
To give economic recovery a boost, the Government has committed to:
· Simplifying corporation tax rates
· Reviewing capital gains tax, aligning it with income tax rates
· Reversing the decision to increase National Insurance contributions for employers
If nothing else, these changes will help to reduce the small business accounting burden by simplifying the tax accounting regime. This should mean more efficient accounting processes, which will enable small business to release more capital into and spend more time concentrating upon direct operations.
Plans released by the coalition government to raise the current rate from 18% to 40% as part of the changes have been greeted with some confusion over what this will mean for small businesses. It’s been hinted that there will be ‘major concessions’ to this raise, although we’ve yet to see what that will mean in practice – and how this sits alongside David Cameron’s assertion in his first major speech as PM that Britain will have ‘the most competitive corporate tax system in the G20.’
Will Government cuts mean a ‘double-dip’ recession?
Not all business organisations were quite as positive as the CBI, et al. The Forum of Private Business (FPB) said the cuts were “cause for concern” and could have a negative impact upon smaller businesses if not implemented properly. “The £836m reduction earmarked for [the Department for Business Innovation and Skills] BIS could potentially mean business support will be one of the worst casualties of the cutbacks,” said Matthew Goodman, Head of Policy at the FPB.
The most negative response to the cuts came, as one might expect, from the unions, with the Trades Union Congress (TUC) describing them as “deeply worrying”. Brendan Barber, TUC General Secretary, went as far as to say the UK economy was not ready for such cuts and that, “Taking any money out of the economy at the moment is dangerous as there is a real risk of a double dip recession, which will only damage the state of the public finances further”.
David Prentis of Unison believes that, “Public spending cuts will hit small businesses, devastate families, and the most vulnerable in our society will suffer. There is no logic in cutting public sector jobs and money for development, only to pile on pressure to the private sector to create jobs".
Small businesses need to look to the future and respond to change
So, what does this all mean for small businesses? Well, it’s probably too early to tell, and it depends who you’re inclined to believe. What we do know is that, whatever happens, for small businesses to survive and grow they need to be lean, efficient, responsive to change and, above all, resilient.
It is vital that businesses have a robust system in place to manage their accounts. Online accounting software like Fusion Accounts can assist businesses in their route to success.
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