Summer Budget 2015 revealed: but is it really what business owners wanted?
The 2015 Summer Budget has been announced, and we can now compare it to George Osborne’s Conservative budget report that was released back in March this year. This report, of course, was released before the Tories won the general election, so it shall be interesting to see if they stick to the promises they made for business owners. It’ll also be particularly interesting to see how this rates in comparison to what business owners told us they wanted from this election during this year’s lead-up, via our General Election app.
The general consensus from business owners in regards to the March report was mixed: policies on tax simplification, business rates and support offered hope, however doubt remains over the UK’s future in Europe. For the country to continue to grow, the government has to provide support in these areas: small business provide up to 99% of the total amount of UK business. So then, how does the 2015 budget really affect business owners?
Corporation tax and business rates
In our survey, business owners initially seemed keen on UKIP’s policies for corporation tax and business rates: for instance, one or more properties with a total rateable value of less than £50,000 will get 20% rate relief. However, with the Conservatives winning the general election, small business relief now is only applicable to businesses who have only one property whose total rateable value is less than £12,000.
Business owners also fancied UKIP in this category for their stance on corporation tax, as they wanted to stop large companies paying zero or negligible corporation tax in Britain, and end the practice of businesses paying tax in whichever EU or associated country they choose. The Conservatives, apart from levelling out corporation tax to an even 20% for both small and large companies in April, have no stance on this. Yet, there was good news regarding corporation tax from the summer’s budget: Osborne announced a further 1% cut on corporation tax, and another 1% by 2020. This sends out a very strong message for small businesses in terms of allowing them to grow faster, so whilst UKIP presented an attractive option at the beginning, the Tories have come up trumps on this one, as this will benefit over a million more businesses.
However, tax relief was one of the most widely anticipated announcements in this year’s budget. Osborne promised a strong reform on business rates and the simplification of tax returns. In the March report he had one eye on small businesses: ‘The death of the tax return’ was a particular highlight from that speech. Osborne plans to abolish the current tax return system in favour of a digitalised version which, in theory, negates the need for small businesses to find an accountant. Of course this should help cut down on tax avoidance as well, through further investment into clamping down on those who avoid paying tax between now and 2020, as a result of the Summer Budget.
EU and international trade
Again, it’s interesting to know that the majority of business owners voted for Labour’s policy on the EU and international trade, with a runaway set of results. The Conservatives fell second, and were a massive 6% behind Labour. Labour promised to retain membership of the EU, however said they would legislate a lock that guaranteed no transfer of powers to the EU without consent through an in/out referendum. They also supported the international trade agreements that bring in significant benefits to the UK, and championed the interests of British export trade. Conversely, the Conservatives proposed a much more dramatic plan of action on EU membership: an in/out referendum before the end of 2017 and, in stark contrast to Labour, conclude current trade deals with USA, India and Japan in favour of an EU/India, and EU/China trade deal.
In the Summer Budget, there was a focus on investing in UK business trade as a whole, rather than remaining localised in London. This means cities such as Newcastle, Leeds, Manchester, and Sheffield (the ‘Northern Powerhouse’) will potentially get to the point where they can rival the south in all forms of business trade through devolution, to increase local decision making and growth in the private sector. However, whether this will feed into the more rural areas remains to be seen.
Business support and access to finance
Once again, our results show that the majority of business owners voted for Labour over the Conservatives in this sector at the general election. However, possibly the major cause of this is down to Labour’s stance on energy: the freezing of energy bills until 2017 and power to regulators to cut bills this winter. Additionally, small business would have been protected by ending unfair contracts and automatic rollovers to more expensive tariffs. Both parties, however, wanted to increase financial support for SME’s, promote and create an investment culture in small businesses, and continue to invest in science and innovation.
This is currently underway beneath the new government, through their ‘Help to Grow’ scheme, which makes finance available to high potential firms, along with a ‘promise’ to help SME’s understand what kinds of support they can receive. An additional £4million has been invested in extending the Skills Investment Fund for another two years: this will provide funding for development in the British film and gaming industries. So whilst Labour was seen as the ‘go-to’ option for business owners, in reality, they haven’t done too badly under the Tories so far. However, whilst energy company North Sea Oil and the gas industry have seen £1.3billion worth of tax breaks and continued investment into energy projects such as electric cars, there is nothing to suggest it will hold much benefit for the small business owner.
As a result of the Summer Budget, the Annual Investment Allowance was preserved at £200,000 from January 2016, the highest it’s ever been, and represents a welcome extension for small businesses who need time to grow. However, there were calls for the allowance to be increased, but sadly this did not happen.
Employer NI contributions and minimum wage
Once again the policies were relatively similar, with the only real exception of Labour wanting to introduce a system where businesses would receive tax rebates in the first year of parliament if they signed up to the compliance of paying workers the region’s National Living Wage, rather than the National Minimum Wage. However, a great benefit the Conservatives have given is the abolishment of Class 2 National Insurance for entrepreneurs and partners in firms. Employer’s National Insurance has also been abolished under the condition of hiring under 21s, and apprentices under the age of 25 since April this year.
Businesses will now also have their National Insurance bill cut by a further £1000 by April 2016 through the Employment Allowance, which now rises to £3000. This effectively means small businesses, as of April next year, will be able to employ four employees on National Living Wage without having to pay any National Insurance at all: a big win for those seeking internships.
With the recent announcement of a new National Living Wage in place of a National Minimum Wage, arguably the biggest statement of the Summer Budget, and the introduction of an apprenticeship levy on large firms (as they typically ‘get out’ more money than they have invested into the apprenticeship) represents an investment in growth for those pursing skilled jobs: 3 million apprenticeships will be created as a result of this.
Want to see the full results from our General Election app? Find out what business owners really wanted before the ballots were in, or head to our help centre for more business, finance, and legal advice.
Published Thursday January 8, 2015