The region’s small businesses received a welcome boost with the pledge of extra lending and a cut in business rates – but there was still dismay that an increase in national insurance will not be reversed.
The Chancellor used the Budget to announce that part-nationalised banks Royal Bank of Scotland and Lloyds Banking Group would provide an extra £94 billion in loans, nearly half of which would go to SMEs.
An extra 15 per cent of central government contracts would also go to SMEs, he said, which could mean up to £15 billion of new business across the whole of the public sector.
He added that business rates would be cut for one year from October, meaning a tax reduction for over 500,000 small businesses in England.
Another measure designed to woo small firms was the creation of a credit adjudicator where companies could appeal against any lending decisions.
Bruce Undy, the Federation of Small Businesses’ (FSB) Warwickshire and Coventry chairman, said there were some welcome measures in the Budget, but that small firms’ employment creation prospects were still threatened by the increase in national insurance.
He said: “This Budget has provided welcome news on helping to improve small businesses cash-flow but the increase in the NICs will be bad for job creation.
“Small firms are key to furthering economic recovery as the UK’s largest employer and we are concerned that through continuing plans to increase employee National Insurance Contributions (NICs) and not introducing a NICs holiday to firms employing less than 50 staff who take on more employees, it will increase pressure on struggling firms meaning they will not be able to take on additional staff.”
He welcomed the Government’s move to take 345,000 small businesses in England out of the business rates system and its extra pledges on bank lending.
“The FSB has been critical of the banks and their lending criteria and looks forward to the introduction of the new credit adjudicator giving small businesses the opportunity to appeal against a decision by the bank to reject a loan application.
“More competition for the high street clearers has been a long time coming,” he said.
But not everyone agreed.
Jonathan Newman, banking analyst at Brewin Dolphin, said: “The big issue is the £94 billion of credit the banks are expected to supply.
“There are not enough people with realistic business plans, but lots who would like to borrow for unrealistic ventures.
“The Chancellor can’t make banks stand on street corners thrusting £20 notes into the hands of likely-looking entrepreneurs.
“It’s window dressing.” Sarah Moss, a director at PKF in Birmingham, echoed the views of the FSB, saying the positive measures announced would still be overshadowed by future national insurance rises.
She said: “The tax breaks for small businesses are clearly politically motivated and designed to neutralise the opposition parties’ appeals to SMEs.
“However, they will only offer a short-term boost to growing businesses; for example the reduction in business rates is valuable, but only lasts for one year.
“The real worry is that any financial advantage will be more than wiped out by increases in NIC in 2011/12.”
There were concerns that the raft of measures intended to improve SME cashflow would not come into play until next year, which could be too late for businesses who are struggling now.
Narinder Paul, head of KPMG’s entrepreneurial tax team in Birmingham, said: “The amount of time that the Chancellor’s speech spent addressing the issues facing SMEs demonstrates that he does recognise the value that they have to the UK economy and that after two years of tough economic conditions and with income dead, access to cash remains a priority.
“With the reduction in business rates for hundreds of thousands of businesses not kicking in until October 2010, many of the Chancellor’s good intentions could come too late for some businesses for whom the most risky time is that period of growth; post recession.”
Mr Darling said he would extend the Time To Pay scheme, which has helped businesses spread £5 billion worth of tax payments over a timetable they can afford, for the whole of the next parliament.
Simon Jonsson, head of tax and people services at KPMG in the Midlands, said: “The ‘time to pay’ scheme has been the life support machine which has kept the vital organs of companies in distress pumping through the economic crisis.
“There has been the suggestion that HMRC has taken a tougher stance on companies with unpaid tax bills in recent months but this announcement should reassure the business community that the collaborative approach taken by HMRC so far looks set to continue.
“We would support any proposal which encourages all stakeholders to work together in business recovery.”
Barry Smith, head of tax at PricewaterhouseCoopers in the Midlands, gave a cautious welcome to the credit adjudication service.
“The news that RBS and Lloyds will lend £94 billion in new business loans will be most welcome to many small and medium enterprises that have experienced difficulties in getting funding.
“They may be sceptical though until they see this in practice and things begin to change on the ground.
“The establishment of a credit adjudication service is also a promising development though Midlands businesses are ultimately likely to reserve judgment until they see the process in action.”
An increase in the threshold of the Annual Investment Allowance from £50,000 to £100,000 is likely to particularly appeal to manufacturing firms in the West Midlands.
Rob Gunn, tax director at RSM Tenon, said: “Not many small businesses incur annual capital expenditure in excess of £50,000 so the doubling of the annual investment allowance will only have a limited impact, but those businesses which are capital intensive will welcome this additional support.”
But Richard Rose, tax partner at BDO, said: “Whilst the increase in the Annual Investment Allowance on capital expenditure for small businesses’ will be a modest boost for a number of smaller businesses, this is no substitute for reform to the overly complex and onerous corporation tax system.”