Will the Autumn Statement help small businesses through recession?

Jeremy Hunt today announced a huge support package for small businesses worth almost £14billion in a bid to protect them from inflation.

Spiralling costs coupled with dampened consumer demand has brought small businesses to their knees this year, just as they try to recover from the pandemic.

While there were no nasty surprises in today’s Autumn Statement, small businesses have slammed today’s announcements as a ‘missed opportunity’.

We look at what the statement means for businesses and what more needs to be done to support business owners.

Will business rates go up?

Business rates have been a serious anxiety for small businesses as support was due to come to an end in April. However Hunt today announced an almost £14billion support package including an extension to business rates relief.

The relief, which was due to end next April, has been extended and increased from 50 per cent to 75 per cent up to £110,000 per business.

The business rates multiplier will be frozen for another year meaning business ratepayers will save £9.3billion over the next five years.

The plans will keep the small business and standard multiplier at 49.9p and 51.2p respectively, rather than rising to 52.9p and 54.2p.

Hunt said: ‘Nearly two thirds of properties will not pay a penny more next year, and thousands of pubs, restaurants and small high street shops will benefit.’

The Treasury claims the total increase in business rates bills will be less than one per cent, compared to over 20 per cent without its intervention.

UK Hospitality boss Kate Nicholls said: ‘I’m pleased that the Chancellor has listened to the vast majority of UK Hospitality’s proposals on business rates, covering a freeze in the multiplier, extended reliefs and no downward transition.

‘This means those seeing their valuations decrease will see the benefit in their bills immediately, at the same time as increases are capped.’

But the announcements may not go far enough for many struggling small businesses. Nicholls has called for root and branch reform of the current system which is ‘outdated and not fit-for-purpose.’

Chris Baguley, of SME lender Together added: ‘Today’s announcements still just amount to a sticking plaster solution. The promise of a £13.6billion package of business rates support just doesn’t cut it for the struggling SMEs up and down the country who had hoped for more substantive cost relief.

‘Today was another huge, missed opportunity for the government to truly demonstrate how they plan to support UK businesses and entrepreneurs.’

High Street businesses may also have something to say about the news the Treasury has ditched work on the online sales tax, which had been intended to fund a reduction in business rates for physical retail stores. 

Will small businesses have to pay more tax?

While there may have been a collective sigh of relief following the business rates extension, many small business owners will be concerned about the impact of higher taxes.

Tax hikes and threshold shifts or freezes were the order of the day, with a significant cut to the tax-free allowance of dividends.  

The allowance of £2,000 will now fall to £1,000 by April 2023 and £500 by the following year. This means directors who pay themselves primarily or partially in dividends will face higher tax returns.

Martin McTague, national chair of the Federation of Small Businesses (FSB) said: ‘The slashing of dividend taxation allowances will be a bitter blow to hard-working owners of small limited companies trying to pay the bills, earn a living and grow their business.

‘This is a group which was excluded from direct support during the darkest days of Covid, then more recently pushed out of the cut in National Insurnace.’

A company director earning £40,000 a year will be more than £500 worse off than an employee earning £40,000 and paying income tax and National Insurance, according to the FSB.

Freezing the threshold for employer National Insurance alongside a rise in the Living Wage will also ramp up the costs of employment even with business rates help.

Similarly a freeze in the VAT threshold will still see costs rise amid higher inflation and McTague warns it could ‘drag more struggling small firms into scope for the tax, while disinventicising others from growing.’

Rich Wagner, chief executive of Cashplus Bank said: ‘Many of our customers run healthy businesses that are being pushed into the red by spiralling costs and will welcome the announced relief on business rates, but all will be acutely aware of the wider impact of higher personal taxes and the need for their customers to make savings.

For Kate Allen, owner of a luxury holiday lettings specialist Salcombe Finest the Autumn Statement failed to deliver any incentives for small businesses.

‘Jeremy Hunt is a modern day Fagin for the working people of this country. The complete failure to deliver on growth and to incentivise small businesses that are the critical backbone of our economy has left me demotivated and depressed.

‘What is the point of working hard if we are being penalised with a freeze on income and tax thresholds, and the reduction of tax-free dividends?’

Will energy continue to rise?

Some better news came for small businesses struggling with energy bills as Hunt extended the energy price guarantee beyond April for the most vulnerable sectors.

‘The government recognises that some businesses, such as those which are highly exposed to energy prices and unable to pass through or absorb these costs sufficiently, may continue to require support beyond March 2023.’

The FSB has welcomed the support package but has said ‘continued support should not be viewed through the narrow lens of specific sectors, but rather based upon the size of a business.’

A review on continuing support for businesses will be announced by 31 December.