Small businesses need a Budget to believe in
The Prime Minister and Chancellor have less than four weeks to set out a clear plan that gives small businesses the confidence to invest and grow, writes financial services expert Theo Chatha
Stability.
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It might not be the most exciting prospect, or a goal that rouses the nation, but as Prime Minister Andy Burnham and Chancellor John Healey prepare their first Budget, it's what millions of business owners are hoping for.
To help drive economic growth, Britain’s business owners need to feel they can take risks, to grab opportunities to grow and invest in their business. But for many, wait and see has become modus operandi as they delay decision-making and wait for clarity.
As the Budget approaches, the mood is no different. Bibby Financial Services’ latest SME Confidence Tracker, a survey of more than 1,000 small businesses, found that over half are holding back major investment decisions until they see what the Budget contains.
Small businesses need a Budget that lets them plan ahead, ease cash flow pressure and access the finance they need to grow in 2027.
The early signs are encouraging. The Prime Minister has announced a 20% cut to business rates for pubs, clubs and live music venues from next April, and has put devolution and support for local communities at the heart of his agenda.
But it's not just local hospitality venues that need support. Manufacturers, builders, wholesalers, and hauliers are all struggling with high costs. More than a third of SMEs we surveyed want the business rates cut for retail, hospitality and leisure extended to their own sector.
The cost of doing business has already risen by over 70% in the past decade, according to the British Chambers of Commerce. When asked to pick their top three priorities for the Budget, 43% want no new increases to corporation tax, 41% want no further rises in capital gains tax, and 39% want the 2025 rise in employer National Insurance reversed. That businesses would welcome a tax cut is unsurprising, but the message is clear – at a time when small businesses need stability and confidence, another cost rise is not tenable.
From higher employer National Insurance to difficult international trading conditions and rising energy prices, costs are squeezing small business cash flow. Borrowing may soon get more expensive too. The European Central Bank raised rates this month, and three of the Bank of England's nine policymakers voted for a rise. Interest rates are out of the Chancellor's hands, which makes the choices he does control, on tax and the cost of doing business, all the more important.
With borrowing costs rising, late payment and poor access to finance only add to the strain. The Commercial Payments Bill is a genuine step forward. A 60-day cap on payment terms shows the Government recognises how pervasive late payment has become. But it does nothing to tackle the structural issues at play: costs and accessing funding.
Access to finance should be a critical focus area for Government. Wider advisory networks and education around alternative lenders as well as an improved Bank Referral Scheme, which 39% of small businesses have never heard of, would all make a difference. Awareness of alternative forms of lending that suit small businesses' cash flow needs is severely lacking, pushing many to default to the blunt tool of a bank loan. By removing these barriers and ensuring our local businesses can get the funding they need, suppliers can be paid, and investment unlocked.
Nearly half of small businesses think the Budget will benefit them, showing a degree of optimism likely influenced by the boost in approval following the Prime Minister’s appointment. A third are undecided. This is a sizeable group to win over if Mr Burnham is ready to seize it.
The Prime Minister and Chancellor have less than four weeks to set out a clear plan that supports small businesses, provides reassurance and gives them confidence to invest and grow.
Until then, small businesses will do what they've become all too good at: wait and see.
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Theo Chatha is Chief Financial Officer at Bibby Financial Services.
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