Rishik Sunak has delivered a confident and resolute Budget in the face of the coronavirus crisis. It was an emergency response to the challenges facing the economy and businesses whose cashflows will be under extreme pressure in the weeks and months to come. But does it do enough? Does the future look brighter for businesses post-Budget 2020?
The chancellor nailed each of his points with the refrain: “This is a Budget that gets it done”, repeatedly reassuring us that the current crisis is only a “temporary disruption” and that prosperity lies ahead. Bullish words, but not everyone agrees.
No one knows how the coronavirus will evolve and what the full economic and human costs will be. On the same day that Sunak delivered his speech, the World Health Organisation announced that we have passed from epidemic to pandemic. Financial markets are continuing to tumble at record levels, President Trump has halted travel from Europe to the United States, and supply chains worldwide are looking increasingly vulnerable. In short, businesses may face a long siege.
Helping SMEs and those struggling
The chancellor has provided a £30bn package to boost the economy, with £7bn earmarked for businesses and workers. The Federation of Small Businesses has applauded it as a “pro-small business Budget” and the focus is certainly on SMEs.
Among the key provisions are the following:
- Business rates abolished for one year for designated businesses
- Companies eligible for the business rate relief will be allowed a grant of £3,000
- The lifetime allowance for entrepreneurs’ relief capped at £1m
- A coronavirus business interruption loan scheme to be set up help SMEs
- The Government to refund statutory sick pay for coronavirus absences at companies with fewer than 250 employees
- The NIC employment allowance to be increased from £3,000 to £4,000
- A review of the Enterprise Management Initiative (EMI) to ensure that the scheme provides support for high-growth companies.
The budget balance sheet
While the cash injection and support will be welcomed by many, questions remain. Where will the money be found to fund this spending spree? Can borrowing to spend create sustainable growth? As the Government hasn’t introduced any big tax rises, it will have to find the cash elsewhere. And what about the losers as well as the winners? Which businesses will be less hearted by Sunak’s cash bonanza?
The budget favours small businesses (eg, retailers and other small high-street players) while manufacturers and larger enterprises are left out. Thousands of small firms are now exempt from paying business rates for a year, but this doesn’t extend to larger businesses (rateable value above £51,000).
Another bone of contention is entrepreneurs’ relief, with Sunak reducing the lifetime limit from £10m to £1m. The change means that many larger businesses (those selling at a profit of over £1m) will pay more tax when exiting.
However, it’s not all rosy for smaller businesses. While the Government has widened its definition of this sector to include museums, galleries, gyms, nightclubs and guesthouses, it is far from all-inclusive. Some businesses, such as playgroups, will feel aggrieved because they fall outside the Government’s definition.
Another consideration is the rise in the minimum wage and how that might affect cashflow. More money may be coming in to support businesses, but more will also be going out. In addition, IR35 was left untouched and will be implemented on 6 April as planned. Critics say it will damage workforce flexibility at a time when we need to draw on the best talent available, and some companies now say they will no longer use any contractors.
Building for the future
It remains to be seen how “temporary” the current economic difficulties will be. The Budget provided a big step in the right direction for some businesses, and was a forthright response to the coronavirus crisis, but more investment will certainly be needed to ensure healthy and sustainable cashflows. The survival of some businesses will depend on how supply chains hold up, as well as what future funding and support is available from the Government and the growing alternative finance market.
We’ll be keeping a close eye on what’s going on over the coming weeks, but if you’d like to discuss your options in the wake of the budget, we’d be delighted to hear from you at Swoop.