Chancellor Rishi Sunak has used his Spring Statement to outline steps aimed at combating soaring energy, food and fuel prices.
He cut fuel duty by 5p but resisted calls to scrap April’s 1.25p National Insurance increase, warning the UK’s post-pandemic recovery had been delayed by the war in Ukraine.
But he hinted at an income tax cut in 2024 when he said the economy would be in better shape.
The Employment Allowance was increased from £4,000 to £5,000. The Chancellor says it will save up to half a million small businesses £1,000
Business reaction was swift and mixed.
Kasper Larsen, Co-CEO of alternative lender YouLend, said it didn’t offer much in the way of light at the end of a dark tunnel for SMEs.
“Sky-high energy bills are putting everyone under pressure, but they are hitting SMEs in particular from multiple angles, so their supply costs are rising faster than their sales. For example, wages are not forecasted to rise or keep up with inflation in any way, so consumers will be spending less.
“Another factor to consider is that global events are making people nervous, which means they’ll be less likely to spend on non-essentials.
“It was only a few months ago that the Federation for Small Businesses declared an SME crisis. Telling SMEs that the path to success is through investment in innovation is all well and good – but when many are struggling to just keep their lights on, investing requires cash flow support that they simply don’t currently have access to.”
Upgrading the UK’s R&D ecosystem is exactly what I would be doing as Chancellor. But the Government has just kicked the can down the road
Sandra Rowley of card payment solutions provider takepayments.com said the announcement of a £1,000 increase in the employment allowance will be welcome as small business owners continue to face challenging financial implications caused by the ongoing staffing crisis.
She said a recent survey revealed one-fifth of small business owners already increased salaries for open job vacancies in 2021 in order to attract workers, while a further two-fifths of business owners plan to do so over the course of 2022.
“The increase from £4,000 to £5,000 will bring some financial ease from these salary increases. However, as inflation continues to rise and the cost of living crisis remains, small business owners are bracing for a difficult few years as consumers feel the financial pinch,” she said.
Njy Rios, Director R&D Incentives at the innovation consultancy Ayming UK believes that whilst the government has clearly engaged with the recent consultations from the R&D community, more urgency is needed to achieve the kind of reform it claims to aspire to.
Late payments from suppliers are forcing small businesses to wait to receive and reinvest money that’s already earned
“It’s encouraging to see that innovation is such an integral pillar of the UK’s economic policy. Upgrading the UK’s R&D ecosystem is exactly what I would be doing if I was Chancellor.
“But today the Government has essentially just kicked the can down the road. The R&D community has already contributed to several extensive consultations into UK innovation over the last couple of years, including one on the R&D tax relief schemes.
“The Chancellor is right to be thorough and work closely with experts in the space. The consultations are also clearly being listened to and supporting progress considering the introduction of data, cloud computing and pure maths into the qualifying cost.
“But we need to see more concrete changes, and at greater speed. Reform is now long overdue considering the scheme is 20 years old and hasn’t had any substantial changes for years.”
Alex von Schirmeister, UK MD of Xero said: “For small businesses, the increase in the employment allowance is a helpful gesture, but doesn’t tackle the bigger issues they currently face. Ultimately, the lifeline that was hoped for did not materialise.
“Late payments from suppliers are forcing small businesses to wait to receive and reinvest money that’s already earned and invoiced. The Small Business Index found the average payment to small businesses in January was 8.3 days later than the agreed terms – 2.3 days higher than in December.
Rishi Sunak has been astute to take urgent evasive action in the Spring Statement as he did during the Covid-19 outbreak
“This is set to get worse and the government can do more to reduce the devastating effect of ‘unapproved debt’ on small business owners. The government must raise awareness of poor practices and hold businesses to account by making unapproved debt a compulsory part of a company’s annual reports. Small businesses have proven their resilience, but tackling late payments is more crucial than ever.”
Daniel Fallows, Director at Gorilla, a specialist accountancy firm for freelancers, said: “As the UK faces a cost-of-living crisis with inflation reaching its highest level for 30 years and the Bank of England forecasting that inflation will rise further to 8 per cent this year – Rishi Sunak has been astute to take urgent evasive action in the Spring Statement as he did during the Covid-19 outbreak.
“While contractors and SMEs are braced for the 1.25 per cent increase in National Insurance Rishi Sunak has taken steps to protect the lowest paid and SMEs by increasing the National Insurance threshold by £3,000 to £12,570 and increasing the employment allowance for businesses with employees, meaning there will be no tax to pay on the first £5,000 of employers NICs due.
“However, it is worth remembering that there will be more pain to come as next year businesses face the first corporation tax rise for almost fifty years – a move that increases corporation tax by almost a third from 19 per cent to 25 per cent. However, again the smallest SMEs will be protected as corporation tax will remain at 19% for the first £50,000 of profits.”
Rachel King, Director, Breathe, had thisd advice: “With the forecasted cost of living increase set to apply more pressure on an already financially strained population, businesses must recognise the upcoming burdens and support their people through the shift.
“People want and expect more from their employers, and now more than ever staff will vote with their feet if a company doesn’t suit them or respect their needs and boundaries.
“As costs are set to rise, firms should look beyond the basic salary offering and examine current benefits packages, too, to ensure they still add value to the lives of UK workers and are fit for purpose.
“Flexible working arrangements, for example, should be offered as standard if businesses hope to retain their best people. Otherwise, it’s very likely we’ll see more reshuffling and resignations as we move further into 2022.”