New research shows businesses want Chancellor to focus on wholesale tax changes
The Forum of Private Business is calling for key measures in the Budget to boost business confidence, trade and growth in 2012.
The leading employer organisation’s submission to the Chancellor, George Osborne, is based on the five key areas of its Get Britain Trading campaign:
1. Improving cash flow,
2. Making tax simple and proportionate,
3. Creating employment and improving skills,
4. Reducing business costs,
5. Creating opportunities for growth.
The Forum’s SME Tax and Budget Panel members have provided their views on what the Chancellor should do to help them grow and the submission draws on earlier research to paint a clear picture of the hopes, desires and frustrations of business owners.
A total of 44% of businesses would like wholesale changes to the structure of the UK tax system, 24% expressed a preference for a removal of certain tax breaks to simplify the system and 13% wanted a moratorium on tax changes.
Alex Jackman, the Forum’s Senior Policy Adviser, said: “By focusing on five key areas - Improving cash flow, making tax simple and proportionate, creating employment and improving skills, reducing business costs, and creating opportunities for growth – we want the Chancellor to produce a budget that truly stimulates small business growth and gives the UK’s economy a timely boost.
“In particular, now is the time to remove the barriers created by disproportionate taxation and hand entrepreneurs significant tax incentives, as well as addressing other threats to cash flow. We should be reward and incentivise these risk takers and engines of growth, not stand in their way.”
Improving cash flow
The Forum is working with the Government to tackle late payment, focusing on creating a culture of prompt payment starting with large companies at the top of the supply chain.
Lacking confidence in UK banks, small businesses report continued restrictions on lending, including the banks’ over-reliance on automated risk systems and steep costs of loan and overdrafts.
The Forum is calling for increased competition in banking, better access to credit for small businesses – including ensuring the National Loan Guarantee Scheme reaches as many small business as possible.
Around a quarter of small business owners on the Forum’s cash flow and finance panel have called for more choice between ‘traditional’ banking services, while 21% want better access to alternative forms of funding. In total, 26% of respondents said they were seeking out alternative financial products, with 21% of these interested in sourcing them from outside the main high street lenders.
While often dismissing it as an existing preference, approximately 1 in 5 businesses were positive about the potential of using crowdsourced funding, suggesting it could offer a good solution to their finance needs – and 1 in 10 want to see how it develops in the next few years.
Making tax simple and proportionate
Our Get Britain Trading campaign supporters were asked how the business environment could be improved. The top two requests from businesses were making the tax system fairer so they can compete on a level playing field (69%) and simplifying the tax system so that they can understand it (64%)[i].
The Forum’s Tax and Budget Panel members called for a tax system made conducive to the success of smaller employers, not a barrier to it, with many complaining about unfair treatment by HMRC while large companies routinely pay less tax and in some cases avoid it altogether.
Businesses would also like to see attempts to stimulate demand and investment. Fuel duty, business rates and National Insurance were aspects of the tax system considered too high. Businesses also wanted targeted cuts in VAT to help labour-intensive industries and for the Government to reduce the cost of compliance.
A number of owners highlighted the difference between those in senior management of corporations and their counterparts in small emerging businesses. They argued that a tax system that hinders wealth creators who are developing a business, but rewards those that have corporate managers, often able to cut costs through outsourcing or greater buying potential, will not help the UK create a sustainable and balanced economy.
HMRC was also seen as needing to improve its targeting of tax avoidance schemes, its tone of communication with business owners and general support for businesses. In all, 32% of panel members felt that HMRC could improve the service offered to small and micro businesses by embracing more easily understandable communication methods. Better support at key steps in the business lifecycle would help, according to 29%, and 23% wanted to receive reminders about imminent payment deadlines.
In addition to the continuing reduction of the main corporation tax rate the Forum is calling on the Government to cut the small firms’ rate at a similar level to reward successful businesses, scrap the 50p income tax to remove a barrier on inward investment that figures show is reaping fewer rewards, balanced by raising the minimum earnings threshold for paying tax to £10,000.
The Forum wants to see greater incentives for family-run businesses and measures which incentivise investment in UK firms, including reducing the tax on interest received during the lifetime of a loan to 0% instead of the 50% top tax rate, additional tax relief if a business fails before the loan is repaid and a short term cut in VAT in the housing sector in order to stimulate the construction industry.
In order for small firms to compete on a level playing field, the Forum is calling for a 2% cap on business rates starting in April 2012 for the duration of this Parliament and backing a review of the unpopular Business Records Checks regime.
The organisation welcomes the Chancellor’s intention to defer 60% of the rates for two years – announced in the Autumn Statement – but believes this further step is still necessary, as is building trust with HMRC – for example by reviewing fines for late payment of PAYE, with the policy of accumulated fines not having been adequately promoted to small businesses either before or during the last tax year.
The Forum is also pushing for tax incentives to reduce the cost of employment – namely that the existing scheme of offering a £5,000 NI holiday for the first ten employees of a new business should be changed. Instead, the Government should offer a £5,000 holiday for the first extra two employees taken on by all businesses. Widening the accessibility of the scheme whilst reducing the extent an individual business could benefit will encourage much greater take up.
In addition, with real time information and mandatory online VAT filing on the horizon, the Government should undertake a stock check of businesses’ capabilities for handling new policies. A simple, easy-to-use regime should be in place, coupled with proportionate and lenient HMRC monitoring of the schemes in their early days.
Further, employment-specific tax should be consolidated and reduced in order to encourage businesses to employ staff. In the longer term, the Forum recommends that the Government commits to merging National Insurance and PAYE and believes the tax system must be reviewed, and, ultimately, completely overhauled.
Creating Employment and Improving Skills
The Forum’s Get Britain Trading panel revealed that 44% of businesses are looking to grow in 2012, with 42% planning to employ new staff, 24% increase the use of freelancers. In all, 18% are considering taking on apprentices, interns or work placements. Clearly simplifying employment law will encourage businesses to act on their intentions and bring on new staff.
With 45% of businesses on the Forum’s Training and skills panel identifying young employees’ attitudinal issues, compared to 15% reporting inadequate skills, 65% of emphasised that focusing on employability attributes would be more likely to encourage them to recruit young workers.
A total of 25% said less red tape would help them to reduce time and costs spent on employment law without undermining existing staff management practices.
The Forum is calling for a Budget to support job creation and improve skills by giving business owners greater flexibility over their employment decisions. While welcoming proposed tribunal changes, more emphasis on the benefits of mediation would also help.
Bringing together skill offerings in one place on the new Business Link website, with the central call centre signposting owners to appropriate providers, would ease the burden of having to trawl through courses and skills training providers.
The Government should continue to simplify aspects of the apprenticeship process, with a focus on specific areas where concerns have been raised, particularly in the area of health and safety.
In all, 31% of the Forum’s Training and Skills Panel wanted smaller firms to be given vouchers to spend on training for staff and 23% wanted a reduction in employers national insurance. Either of these measures would help reduce the costs and incentivise businesses to take on younger people.
Reducing Business Costs
Forum Referendum survey data from October 2011 suggests that 94% of businesses had seen an increase in energy costs, 92% in transport costs and 82% an increase in the cost of raw materials and stock.
Excessive administrative demands have meant that 45% of businesses have not been able to focus on activities such as cost cutting.
The Forum wants the Budget to reduce business costs by introducing a fuel price stabiliser to provide consistency over transport costs, and believes the Government should consider excluding the fuel duty element from VAT charges on fuel.
It is also lobbying to ensure micro and small businesses are treated fairly by utilities companies following recent and substantial increases in utility prices.
The Forum would like to see a business-focused code of conduct that contains the same protections for businesses that are currently enjoy by domestic users, a requirement for data on utility customers’ complaints to be published regularly and strict timeframes for suppliers to make the information available, more powers to allow Ofgem to protect businesses from mis-selling and an accreditation scheme for voluntary codes of practice within the TPI sector, covering third-party intermediaries.
To limit the impact of employment costs the Forum is backing the Low Pay Commission’s mediatory role, emphasising that mediation should always include analysis of basic rates of pay across the UK when calculating National Minimum Wage changes.
Creating Opportunities for Growth
The latest Forum research shows that 55% of Get Britain Trading campaign supporters anticipate growth or strong growth in the coming year – and 95% are already exploring ways of developing their businesses.
In order to help them to do so, the Forum believes the public procurement process should be improved, with more effective tendering processes for government departments and pre-qualifying questionnaires that are focused on businesses’ ability to deliver rather than on imposing social policy and effective Local Enterprise Partnerships that add value in terms of supporting businesses, but that don’t duplicate cost-effective support available from the private sector.
The Forum is calling for an expanded UKTI to meet the current needs of small businesses over export. Clearer information about foreign markets is needed to give firms a better understanding of the opportunities and risks involved in trading overseas. In all, 42% of Forum members would consider exporting in the future but see the lack of information about their target country as an issue.
In addition, the Export Credit Guarantee Scheme should be simplified in order to increase the number of small firms that can access it and to improve its cost-effectiveness.