Reflecting on yesterday’s Autumn Statement (17 November 2022), in my role as FSB Policy Chair, the picture is in some ways even gloomier than it first appeared - both the stealthy tax grabs on small businesses and the self-employed, and the woeful lack of a strategy to promote enterprise, growth and future prosperity.
The big surprise sting hidden away in the detailed Treasury documents is a potential hike in fuel duty, which could add 12p a litre from March when the fuel duty cut from earlier this year is – as it turns out - earmarked to expire. The Government must reconsider this. Fuel is a huge cost for many small businesses, including those in rural areas, and it will be hard on top of everything else to absorb yet another rise in prices at the pumps.
Alongside the cost of doing business crisis, many small firms have already started to see falling revenues in recent months, as both businesses and consumers tighten their belts. Yesterday’s forecast that disposable income will slump by 7% will hit the consumer economy, and in turn add to the financial pressures on small businesses.
There was a lot of talk yesterday of ‘freezing thresholds’. Let’s be clear what this means in practice – it means an even higher tax burden. Freezing the VAT threshold while inflation is sky-high will drag more small business owners into the scope of VAT – and the impact of that is not just the tax cost, but also the money and time needed to comply. Alternatively, it will deter those just below the threshold from growing.
Freezing the employer National Insurance threshold will push up employment costs even further. This is a stealthy Jobs Tax and also the single biggest revenue raiser in the Budget – this is small employers picking up the tab for the extra spending announced by the Chancellor. Add to that the rise in the National Living Wage, which is positive for those on the lowest wages but will be a struggle to afford when there’s little to offset it by a reduction in other business costs. The only saving grace was the Chancellor retaining the Employment Allowance at its current level, hard fought for by FSB.
For company directors, the slashing of dividend allowances will leave a business owner earning £40,000 a year more than £500 worse off than an employee on £40,000 a year paying income tax and national insurance. On top of changes to capital gains tax, it wouldn’t surprise me to see some exiting our small business community. It will also make it more expensive to start a business, acting as a disincentive to new enterprise.
Gutting the R&D tax credit scheme will crush innovation and growth, at a time when innovation and growth are exactly what we need. The Office for Budget Responsibility will need to revise its assessment of the impact as the ONS completes its revision of UK R&D statistics. Where the argument is made that there is a degree of fraud in the system, I say that the answer to that is for HMRC to buck their ideas up and manage a tax credit scheme properly; not shove small businesses out of it because the tax office seems to find it too difficult to do its job.
There was one major piece of positive news on business rates changes - a potential inflation-linked increase scrapped; a better approach to reducing faster the rates bills for those who have a downward revaluation of their property for April; and an extension and expansion of relief for those small firms struggling in retail, hospitality and leisure. This is something FSB has campaigned for, and it was very good to hear us mentioned by the Chancellor in his statement in the Commons.
A recognition of the need to bring more economically inactive people of working age back into the workforce also sounded positive, at a time when so many small businesses are struggling to recruit the staff and skills they need. This should be high on the government’s to-do list – and shouldn’t just be about funding expensive, but arguably ineffective, DWP schemes as in the recent past. FSB is ready to help on this, as it’s so important.
Energy help must also be on the urgent list. While the support package for small firms will be a help through what is going to be a tough winter, it’s clear that we still need to make sure bills are correctly discounted. Beyond the first six months of support, the scheme will become less generous. It’s important when the government comes to decide what a future support package looks like that it’s not viewed through a narrow lens of specific sectors, but instead by the size of a business. All small firms who use energy are vulnerable to the sky-high costs which are likely to continue, and a cliff-edge moment in April must be avoided.
There’s no doubt that yesterday’s Autumn Statement makes the cost of doing business crisis more difficult – while also ‘steadying the ship’. The ship needed to be steadied, but it also needs a clear map, fuel in the engine, and a destination. That was not apparent yesterday and has not appeared in the aftermath. Going forward, a course must be set towards stimulating growth, innovation and economic recovery. There are 5.5 million small businesses and self-employed in the UK. More than 16 million jobs depend on small firms. Balancing the nation’s books off their backs is a recipe for a longer and deeper recession. Economic recovery will come when small businesses are reprieved from some of the hefty burdens which are holding them back from growth and investment.
About FSB
As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.
FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.
