It feels like a long time ago when then-Chancellor Phillip Hammond abolished the Autumn Statement in late 2016. He rather reasonably spotted that having two major fiscal events each year is a nightmare for individuals and businesses planning their affairs. He rightly noted: “No other major economy makes hundreds of tax changes twice a year, and neither should we.” His vision was of a Budget in the autumn to give businesses time to prepare for major changes to the tax system and a policy-light spring statement where the Chancellor would respond to the OBR’s latest forecast and do little else. It was a fundamentally sound idea.
Events, sadly, have tended to get in the way. The Chancellor has been forced into action multiple times over the past two years. He has had a pandemic, lockdown, reopening, lockdown two, lockdown three, and surging energy costs to deal with. The Russian invasion of Ukraine is forcing Sunak’s hand again. It is fanciful to suggest that he can get through the Spring Statement without acting to protect households and small businesses struggling with surging costs.
His priority will be to help struggling households – his initial package of support is clearly insufficient. But business shouldn’t be forgotten. After all, they create the jobs that households rely on. There will understandably be a fair bit of fire-fighting, but pandemic-style bailouts are unlikely. We can’t simply freeze the economy in place whenever trouble comes.
Instead, we need a plan to help businesses realise their growth ambitions. To that end, today we’ve released a new report on Access to Finance, working with our friends at Enterprise Nation. It’s part of our joint Access All Areas project. Based off the simple idea that we should make it easier for businesses to access things they need to succeed, from productivity-enhancing tech to expert advice, and everything in between.
In the first report in the series, Enterprise Nation’s Emma Jones and I set out three concerning issues that the Chancellor needs to address. First, self-employment has fallen from record highs. Second, while equity investment in the UK continues to grow, the number of first-time seed stage deals is dropping. And third, the aforementioned cost of living crisis threatens to crush consumer demand and force many businesses to close.
So what should be done? We set out five key changes in the paper, but I’ll focus on just three.
First, the government shouldn’t make the problem worse. HM Treasury recently opened a consultation looking into introducing an Online Sales Tax. It’d be a terrible idea. The ability to sell online has dramatically cut the cost of starting a business and many high street retailers were saved by pivoting to online sales during the pandemic. Do we really need to penalise these businesses right now? The Government’s plan is to use the revenue from an Online Sales Tax to cut business rates, but there’s a problem with that plan. Economic research finds that when business rates are cut, the benefits do not always flow to businesses. Rather, landlords tend to respond by hiking rents offering little relief for SMEs.
Second, high-growth businesses often have trouble getting off the ground. Loans are often inappropriate for startups who lack a trading history and may be years away from turning a profit. That’s why schemes like VCTs, EIS and Seed EIS exist to support equity investment. They’re powerful schemes and have driven investment in startups over the past decade, but they aren’t perfect. We set out two ways they could be better. Most importantly, they need to be simpler. The requirement to have a named investor to gain advanced assurance makes it unnecessarily harder for startups to access the relief. In addition, the threshold for accessing the scheme should be updated and increased from £150k to £250k to reflect larger first-time deal sizes. Fixing this, would go some way to arresting the decline in first-time seed stage deals.
Third, Help to Grow, a new initiative to help businesses adopt productivity-enhancing tech and improve their management skills should be expanded and improved to allow micro-businesses to benefit. At the moment, they require businesses to have at least five employees to be eligible, as a result 95% of small businesses are locked out. The digital scheme also only offers a limited range of software. For example, although the scheme provides discounts on accounting software, it does not apply to forecasting and planning software, which could drive growth and productivity. Point-of-sale software and enterprise resource planning (ERP) software are both key to helping businesses sell more and become more efficient, but at the moment both are excluded from the scheme.
Changing the eligibility rules around the scheme so businesses with at least one employee can use it and expanding the range of software on offer would have major benefits and help SMEs achieve their long-term growth ambitions.
You can read the whole report for more ideas. The challenge now for the Chancellor is to act and help businesses not only survive difficult economic conditions, but sustainably grow and thrive.