News Article

Sector Analysis

Tax and regulation overshadow credit restrictions for small businesses

By CreditMan Wednesday, October 15, 2008

Despite reports that accessing credit has become more difficult for small firms because of the economic downturn, resulting in the Government's insistence that its £37 billion funding for banks is used to support small businesses, accessing finance – although a serious problem – is not considered to be among the top ten barriers to growth. However, late payment remains a major concern for many business-owners.

In the FPB's latest quarterly survey of members, Referendum, 63% of respondents said health and safety regulations are a ‘significant' barrier, while 61% cited employment law. With finances tighter, 60% reported that the cost of complying with other legislation was a barrier to growth, while 55% identified the cost of fuel and 54% tax, including National Insurance.

Access to finance was considered to be a barrier by just 13% of respondents – well below business rates (50%), skills shortages (26%), the cost of materials (25%) and local parking restrictions (19%). However, almost one in three respondents (31%) said they consider late payment to be a ‘significant' barrier to the growth of their businesses.

"The Government's pledge that small businesses are to benefit from its decision to re-capitalise the banks is certainly good news. Promising to maintain the availability of lending at 2007 levels, before the situation deteriorates, will be welcomed by entrepreneurs across the country," said the FPB's Director of Finance, Nick Palin. "However, the FPB's research shows that the longer-standing issues of tax and over-regulation are still the main barriers to growing a business in the UK. Addressing the disproportionate tax system and removing regulatory hurdles must be the Government's top priorities in supporting small businesses, now more than ever."

The Government is increasing the lower rate of corporation tax from 19% to 22% by April 2009. Conversely, the higher rate, paid by bigger businesses, is being cut from 30% to 28%.

In an earlier Referendum survey, carried out at the end of 2007, 97% of respondents believed that the Government's tax changes had made the UK a worse place in which to do business. Research ahead of the 2007 Comprehensive Spending Review revealed that 67% of respondents said that reversing the decision to increase small firms' corporation tax would encourage them to reinvest in their businesses, with 49% indicating they would have extra funds to invest in skills and training, and 47% saying they would be more likely to seek to grow their businesses.

In addition, the Government has announced plans to impose ‘regulatory budgets' on individual departments. It follows the revelation that the Prime Minister, the Rt Hon Gordon Brown, introduced a record number of new laws in his first year in power, more than any of his predecessors. The FPB believes that more must be done to tackle the burden of existing regulations as well as new laws.

Phil Orford, the FPB's Chief Executive, launched a campaign in June this year calling on decision-makers in Westminster, Brussels, Northern Ireland, Scotland, and Wales to ‘Think Smallest First', in order to reduce the administrative burden of new and changing regulations on small businesses. MPs are being asked to sign the ‘Think Smallest First' pledge and ‘take action to ensure that the smallest employers – those with fewer than 10 members of staff – are prioritised by the Government'.

FPB member Skypark Freight, a haulage company in Liverpool, does not need to borrow to survive, but Managing Director Tim Rhodes finds that tax and legislation are significant barriers to doing business.

"The Government's financial package is certainly necessary, but regulation has got to the point where it's strangling small businesses everywhere," he said. "It just takes up so much of my time and the system is very inefficient. Also, there has to be another percentage point taken off interest rates to allow businesses that are struggling to have some relief."

He added: "They [the Government] don't seem to be thinking of tomorrow. Small businesses are quite resilient and tend to bounce back, but all of these additional taxes are very trying," he said. "Often, it comes to the point where you ask if it's worth carrying on. We can hold on only for so long; after that, unfortunately, the result will be job losses."

Other issues highlighted as the main barriers to growth by respondents to the latest Referendum survey include unfair competition (25%), transport infrastructure (19%), public sector procurement (12%) and crime (11%).