Sunak’s ‘box office Budget’ wins approval of British businesses
Chancellor Rishi Sunak’s first Budget has been heralded as a ‘box office Budget’ that is ‘bold’ and ‘pro-business’ after he announced a range of measures to support the economy during the coronavirus outbreak and a massive programme of ambitious future spending.
Sunak’s Budget includes a number of support measures for SMEs affected by the medical crisis, and £600bn of spending to enhance opportunity and infrastructure in all regions of the UK.
Sunak insisted the measures being introduced will help companies emerge intact from the coronavirus scare, before implementing the ‘biggest ever’ programme of public spending to boost the entire nation’s economy.
The business community has reacted positively to Sunak’s vision.
Jonathan Geldart, Director General of the Institute of Directors, said: “This was a box-office Budget. Given the circumstances, the Chancellor had to be bold, and he came through for business today.
“With the coronavirus outbreak threatening a cashflow crunch, measures to cut costs and support loans to businesses are on the money. Wider reliefs around business rates and job taxes will also buoy firms as they look to weather Covid-19’s implications.”
Dame Carolyn Fairbairn, CBI Director-General, said: “In deeply challenging times the Chancellor has worked against the clock to deliver two Budgets in one: a first for national resilience today and a second for economic ambition tomorrow. It’s a bold Budget at scale, coordinated with the Bank of England, which will help people and business through tough times.
“Overall, today’s Budget is a powerful signal to firms at home and abroad that the UK can and will manage the immediate challenges and long-term opportunities in parallel.”
Mike Cherry, National Chairman of the Federation of Small Businesses, said: “This is a pro-small business Budget, which has delivered a high streets bonus, a series of Conservative manifesto promises to small businesses, and emergency steps to support small firms through the coronavirus outbreak.”
Mitigating the impact of coronavirus was a major focus of Sunak’s announcement, with extra funding streams, sick pay support, tax breaks and increased payment windows all being made available – as well as a 12-month suspension of business rates for SMEs in badly-hit sectors.
Cherry continued: “Covering the cost of statutory sick pay and emergency measures for the self-employed are particularly welcome.
“Removing the minimum income floor for those on Universal Credit will bring help to those working hard to keep their businesses going.
“These are vital contingencies for the UK’s 5.8 million-strong small business and self-employed community.
“There may need to be further steps in the weeks and months ahead. The Bank of England funding package means that there are no excuses for banks not to help, when a small business customer is in distress.
“Suspending business rates for small high street firms is a huge bonus for our town centres and high streets.
“Together with extra cash for those that already qualify for small business relief, this shows a real commitment to supporting small businesses at the heart of communities.”
Phil Smith, Managing Director at Business West, said: “Given the growing scale of the impact of coronavirus on the global economy – and also its likely impact on the UK – a strong statement of intent from the Chancellor is absolutely the right thing to do.
“The scale of the response was impressive. If the past few weeks has been about turning on the taps to wash our hands, here was the Chancellor turning on the UK’s fiscal taps to try and avoid the worst. It also shows welcome co-ordination with the Bank of England to help provide support direct to businesses and indirectly to their workers.
“For business his message was that this support would act as a ‘bridge’ to help cope with one off stresses and make it through to a resumption of normality. When many businesses are feeling worried about how to cope, Rishi Sunak’s proactive firepower will be very welcome.
“However, there remains a daunting global backdrop. No one yet knows how big a shock coronavirus will bring us. Today the ONS had already announced that growth from January to March had stalled to zero. The government’s growth projections had also been shrinking, even before coronavirus had been taken into account. And we still face major changes in our global trading relationships, and with the EU, when the transition period ends.
“Some will therefore be nervous that this budget could be a hostage to fortune, reliant on continued benign global interest rates, a rapid return to growth, and with a needed clawback through higher taxes in two or three years’ time. A short-term boost to help the UK out of a difficult place, we now place our faith that the future will take care of itself.”
Anne Kiem, Executive Director of the Small Business Charter and CEO of Chartered Association of Business Schools, said: “Small businesses are going to be frontline for the economic shock brought by coronavirus; whether it is a reduction in demand, supply-chain struggles or challenges with last-minute staffing shortages and paying sick leave.
“The measures announced in the Chancellor’s ‘corona budget’ include an unprecedented package of short-term measures to support small businesses during 2020. From a sick-pay rebate, to the discount on business rates, to access to cheap loans, each of these measures in their own right might not necessarily move the needle, but the Chancellor has thrown the kitchen sink at the problem.
“This is a very significant start which should give hope to small businesses facing this crisis. Small businesses will come through this, but times will undoubtedly be tough for the foreseeable future.”
Nigel Green, Chief Executive of deVere Group, said: “The Chancellor’s budget was one of substance when it came to shoring up the British economy in light of coronavirus and it will ultimately be welcomed by stock markets.
“He set out a raft of stimulus measures – that total £30bn – that will help shield businesses from the worst effects of the outbreak, including that a fifth of the UK workforce could be out of work at any one time due to the virus.
“Whilst immediate gains are muted somewhat due to the short-term risks, markets will generally champion the economic support provided by the government. The steps set out by Mr Sunak combined with the Bank of England’s rate cut on Wednesday will help smooth investor jitters following a turbulent start to the week.”
Fairbairn said: “As the UK responds to the immediate challenge, people are the first priority. So the measures to expand and ease access to sick pay and benefits are vital to protect people’s health and livelihoods.
“The Chancellor’s actions on business rates, emergency funds and loans will help ensure firms can weather the storm, especially smaller firms. Larger firms may also need support as the situation develops.
“Covid-19 will bring new challenges daily which will need to be resolved, at speed. Today’s impressive economic response should now evolve with business insight to become as agile as our approach to public health.
Adrian Young, Tax Partner at Hurst, said: “The Chancellor has fulfilled his pledge to take immediate action to deal with the impact of coronavirus and provide support to business. Of particular note for business is that the government will refund the cost of statutory sick pay due to coronavirus for employers with fewer than 250 staff for the first 14 days.
“According to the Chancellor, it is one of the most comprehensive responses by any government around the world to date, although in these uncertain times it may well be the case that further measures will be required.”
Richard Lloyd-Warne, Partner at UHY Hacker Young, said: “A lot of SMEs have seen their cash flow start to tighten in recent weeks. The extension to Time To Pay could be vital to make sure they get through the coronavirus crisis unscathed, but only if HMRC can make deals with businesses quickly.
“The most important thing the Government can do is to implement the TTP extension quickly, with a minimum of red tape and bureaucracy. If coronavirus really hits the UK hard, businesses will need to get extensions on their tax bills in days, not weeks or months.”
David Hough, a Partner at tax and advisory firm Blick Rothenberg, said: “The move to refund statutory sick pay to small businesses whose staff self-isolate is helpful, but we will also see low-paid people on hourly wages, who are fit to work, lose their hours as demand decreases.
“Temporary income protection would help ensure those people get through the upcoming decline in productivity.”
Simon Rothenberg, a Senior Manager at Blick Rothenberg said: “Sick pay from day-one is a good move, but how will the Government reimburse business? This will not help cash-flow issues given the fall in economic activity expected.
“Abolition of business rates for one year is welcomed. It will help small retail businesses and the leisure industry. This is huge support, as is the long-term review of rates. Cash grants to 700,000 small businesses of £3,000 will help with the cash-flow issues small businesses are likely to experience.”
Paul Galligan, Chief Executive of business switching service Bionic, said: “The new Chancellor has put it all on the line for the UK’s SMEs at a critical time for the UK economy. Delays to the time to pay services, the roll out of a new coronavirus loan service, the temporary abolishment of business rates for specific sectors and a £3,000 cash injection for small businesses across the country will create a much-needed safety net for hard-working SMEs up and down the country.
“It remains to be seen how quickly businesses can access the cash injection and be repaid having claimed compensation for sick pay. It is vital that government services are swift. Overall, though, SMEs needed a turbo-charged response to the crisis, and it looks like they’ve got it.”
John Ellmore, Director of Know Your Money, said: “The Government’s move to support the self-employed offers some much-needed assurance to those that make up the expanding gig economy. What’s more, emergency support to help businesses implement self-isolation measures is welcoming.
“That said, we are still left wondering as to what the long-term solution will be. Should the coronavirus outbreak worsen, just how much assistance can the Government realistically provide to help businesses and their employees?”
Richard Godmon, Tax Partner at accountancy firm, Menzies LLP, said: “Just a few months ago, we were promised a Budget that would put an end to austerity and kickstart public spending. The onset of coronavirus threatened these plans – requiring temporary fiscal support for businesses – but on the face of things, the Government has achieved both.
“Suspending business rates for the retail, hospitality and leisure businesses this year will mean that businesses with properties with a rateable value of less than £51,000 per annum will see their business rates bill drop by a third.
“Scaling-up time to pay arrangements will also create greater legroom for businesses concerned about cash flow pressure due to the impact of workers’ inability to attend work and supply shortages.”
Entrepreneurs’ Relief reforms
The Chancellor revealed he had faced calls to abolish the Entrepreneurs’ Relief scheme – but said he has resisted those calls because Britain needs ‘more risk-taking and creativity, not less’.
However, while the scheme remains in place, its lifetime eligibility has been reduced from £10m to £1m – a decision made in line with FSB calls.
Cherry said: “The sensible compromise on Entrepreneurs’ Relief is one that we have proposed and championed, and everyday entrepreneurs will be pleased to hear the Chancellor say that he has listened to FSB on this.”
Adam McGiveron, Corporate Partner at law firm, Shakespeare Martineau, said: “The Government has not done what many feared they would in abolishing Entrepreneurs’ Relief. They have however severely curtailed it.
“Reducing the lifetime limit of Entrepreneurs’ Relief from £10m to £1m effectively punishes many businesses for the actions of those few who used it to game the system.
“It won’t be a shock and those looking to sell their businesses will likely still go ahead. With the tax benefits of Entrepreneurs’ Relief now far less generous, the deals will still go ahead, but careful thought will need to be given to structuring them in a tax-efficient manner.”
David McCourt, CEO and Chairman of private investment firm Granahan McCourt, said: “Following the Chancellor’s announcement that Entrepreneurs’ Tax relief has been cut from £10m to £1m, the government should be doing all it can to weaponise the tax system so entrepreneurs are encouraged to create new businesses and jobs.
“I agree we need a change in the tax code, but the way to do that is to encourage entrepreneurs to reinvest and continue creating value, rather than extracting it. When entrepreneurs sell a business they created, if they reinvest their money in another business and create more jobs, they should be incentivised.
“I’m in favour of taxing passive investors, but the situation is completely different when an entrepreneur has ploughed their life and money into creating a successful business. We need to adapt the business cycle to generate wealth and employment for the whole community. It’s the creative thinkers and risk-takers who should be encouraged to reinvest.”
Martin Taylor, Deputy CEO at Content Guru, said: “At a time when the UK economy is under huge pressure, reducing Entrepreneurs’ Relief doesn’t send a strong signal to businesses and the individuals behind them that they have the government’s full support.
“It’s dangerous to put a ceiling on entrepreneurs’ ambitions. Yes, most businesses are small and in the sub-millions range, but the ones we really need in Britain are the mid-to-large businesses. We need to be creating as many entrepreneurs as possible in the hope that many of them will go on to become the next British businesses success story. It’s these companies that will have the most significant impact on Britain’s economy in the coming years.
Godmon said: “As hoped and expected, ER has been restricted rather than abolished. This is welcome news for entrepreneurs across the country who have risked their personal capital to establish businesses, employ people, and to stand on their own feet.
“That said, the restriction of the lifetime limit from £10m to £1m is a substantial reduction and will impact serial investors who use the sale proceeds to establish new businesses.”
James Tucker, CEO of technology provider Twenty7Tec, said: “The retention of a level of Entrepreneurs’ Relief is a welcome change to the expected abolition of this benefit. At this time in the economic growth cycle, and with the global economy inevitably facing a slowdown, any mechanisms which incentivise entrepreneurs to strive to grow their businesses should be encouraged.”
Jane Mackay, Head of Tax at Crowe, said: “Today’s Entrepreneurs’ Relief changes to reduce the lifetime limit mean that entrepreneurs who have worked hard to build their businesses will continue to benefit from 10% tax. However, the change means that the tax saving is now worth only £100,000, compared with £1m before the Budget, and this saving just feels too low.
“If the Chancellor was determined to reduce the cost of ER, it would have been better to undertake a proper review, and perhaps to introduce a minimum working hours test for shareholders, while keeping the lifetime limit a bit higher. Linking the relief to time spent working in the business is both consistent with how ER applies for partners and sole traders, and with the reliefs that preceded ER and would mean that those entrepreneurs who worked hard to grow their businesses would still be rewarded.
“With UK Capital Gains Tax rates still at only 20%, compared with income tax rates of 45%, these changes to restrict ER are unlikely to dampen investor appetite to deploy capital in the UK’s vibrant and successful SME sector.”
Investment in R&D, technology and innovation
The Budget including a pledge for widespread government investment in research, innovation and tech, with energy, transport, space, nuclear and more all referenced.
Business will individually benefit too, with an increase in R&D expenditure credit from 12% to 13% – worth £2,400 on a typical R&D claim.
Erin Platts, Head of EMEA and President of UK Branch, Silicon Valley Bank, said: “The boost in funding for research and development announced in today’s UK Budget is a great vote of confidence for the UK’s innovation economy.
“Our innovation sector has been booming with record amounts of capital invested into disruptive businesses across diverse sectors and regions, so this announcement is well-timed and welcomed to further support its growth and success.”
Fairbairn said: “It is very good to see this Budget’s focus on innovation and infrastructure. The Chancellor has listened to many calls from CBI members, with decisive action on vital long-term issues.
“The significant uplift in R&D funding, creation of a UK version of ARPA, a fundamental review of business rates and spending promises on infrastructure will all bring real benefits to people, business and communities.
“The Chancellor has set out some powerful incentives to get businesses investing, increasing the R&D tax credit and the Structures and Buildings Allowance. The £5bn of new export loans will encourage the best of UK business to look to new global markets.”
Geldart said: “Efforts to ramp up R&D will be crucial to help businesses reset for the long-term challenges ahead. The other key component needed to future-proof our economy, skills, is moving in the right direction but still needs development.
“The Chancellor is going ‘all-in’ on infrastructure. Directors have long been crying out for transport and digital upgrades, but this doesn’t mean there can be a blank cheque. The question now is how we translate that money into real improvements for local economies.”
Snub for the South East?
The Chancellor pledged a ‘mindset change’ from the government to ensure jobs, spending and infrastructure are properly shared across the whole nation.
He said: “Talent is evenly spread, but opportunity is not and we need to fix that.”
He specifically referenced funding for Scotland, Wales and Northern Ireland, spending ambitions across the regions, and new trade envoys to represent regional interests in overseas markets.
However, there are fears that this move away from a South East focus will disadvantage South East communities outside of the London sphere.
Henry Powell, Chairman of the Coastal West Sussex Partnership, said: “Chancellor Rishi Sunak’s long-awaited budget was laced with not-so-subtle hints for the South East. Peppered with asides to the north and the midlands, the budget’s spending pledges were cold comfort to our region.
“Announcing a dedicated trade envoy for the North, Midlands, Wales and West of England, the Chancellor may as well have said ‘anywhere but the South East’. Then came a pledge to spread science funding away from the South East and to universities in the rest of the country.
“Sunak spoke of a shift in the government’s mindset, citing a new economic campus for Scotland, Wales, Northern Ireland and the North, a new devolution deal for West Yorkshire, creating low carbon jobs in Teeside and Merseyside, London-style funding settlements for the new West Yorkshire mayor worth £1.1bn, investment in towns like Stoke, Preston, Derby, and roadbuilding in the north.
“In these trying and troubled times, as a hopeful budget is delivered to the rest of the country, it is disheartening that the great many pockets of poverty across our region are to be swept under the carpet yet again.”