Before the crucial general election was confirmed for 4 July, you might have expected every political party to be pulling out all the stops to secure support from the not insignificant 5.6 million small businesses around the UK. This has not, however, been the case according to some industry insiders.
Small business-focused news is scant among the Liberal Democrats, Green Party, and other more minor parties in particular. The two major parties have offered a little more detail, and many of their policy positions differ.
Chancellor Jeremy Hunt’s March Budget had a number of announcements focused on improving the landscape for small businesses, including supporting R&D in science and technology, and raising the VAT threshold to cut tax for micro-businesses. Labour, meanwhile, promises to bring down energy bills for micro-businesses, provide free full-fibre broadband to every business, and stamp out late payments.
With small businesses facing economic uncertainty, rising costs, and stubbornly high energy bills, they are crying out for a political party in power that is committed to solving these problems. Let’s take a closer look at some of the issues for small businesses that accountants expect to be particular focus points in the run-up to the election.
More direct innovation funding
Research and development (R&D) is a spotlight area for every political party, and Kelly Oakley, associate director at ForrestBrown, says there is consensus that innovation is a good thing and key to growth.
She says: “The Conservative government has championed the UK as an ‘innovation nation,’ while Sir Keir Starmer says that to grow we need to innovate.” The Liberal Democrats have revealed that, should they win power, they will “support science, research, and innovation, particularly among small businesses and startups.”
The Green party has also said it aims to “support creativity.” Labour aims for at least 3% of GDP to be invested in R&D and has said that it will secure ten-year R&D budgets as well as establish a new ‘Regulatory Innovation Office to hold regulators accountable for any delays.
In November 2023, the government announced it would invest £500m over the next two years to fund more innovation centres to help make the UK an “artificial intelligence powerhouse.”
The government has prioritised supporting entrepreneurship in its R&D efforts, as it aims to encourage investment. However, innovation funding consultancy Ayming UK says that, despite this policy, funding initiatives have fallen short – leaving businesses grappling with unclear reforms.
Ayming UK’s study of more than 600 industry leaders finds that 79% of British businesses back Labour on innovation, suggesting there is widespread frustration with the current government’s offer.
Going forward, innovation funding will be an important growth driver for small businesses. For ForrestBrown’s Oakley, direct innovation funding announcements will have immediate impacts. For example, a further round of grants from the Life Sciences Innovative Manufacturing Fund will be made this summer. “Successful bids could secure significant investment and create jobs across the UK.”
Much-needed help with energy bills
A recent study from Simply Business found that 36% of small businesses have had to reduce their services or opening hours to combat the higher cost of doing business due to rocketing energy bills. Prices continue to soar, remaining a massive challenge for many small businesses.
Labour’s ‘Green Prosperity Plan’ includes a voucher scheme aimed at reducing the cost of electric vehicles, heat pumps, and insulation for businesses. It proposes a windfall tax on oil and gas companies to fund these vouchers for small businesses, expecting to generate €700m.
The Liberal Democrats, meanwhile, will provide incentives for businesses to become more energy efficient, as well as pledging a year’s support for businesses with energy costs. The Conservatives have not yet mentioned a replacement for the Energy Bills Discount Scheme, which ended at the close of March.
However, in “recognition of the inflationary pressures facing small businesses, especially with energy bills,” the government raised the VAT threshold in the Budget. Graeme Hills, tax director and head of the private client at Duncan & Toplis, says: “This and other measures might seem small individually, but cumulatively they offer a real incentive to back British businesses. Businesses may perhaps have hoped for more targeted relief… But this is an uplifting Budget overall that I think will go a long way towards improving the UK economy from the ground-up.”
Extension of full expensing measures
Full expensing measures, a first-year capital allowance allowing businesses to write off 100% of investments in plant and machinery, were extended in the Budget.
The government claims that the extension of the allowance, expected to be worth £11bn a year by 2028/29, will make the UK’s capital allowances regime “world-leading.” The Greens say they will support this extension as long as the investment is into environmentally beneficial sectors.
Full expensing has been on the agenda for Labour too, with shadow chancellor Rachel Reeves pledging to maintain the current government’s full expensing and the annual investment allowance.
Michelle Denny-West, a partner at Moore Kingston Smith, says that while the implementation of full expensing measures is positive news, the policy appears to be more beneficial for larger businesses. She says: “It’s unlikely small businesses will benefit greatly from full expensing since tax relief was already available under the current capital allowances or expense deduction regime.” Indeed, in an article for The Guardian, accountancy firm Blick Rothenberg suggested the allowance is only relevant to about 7,000 registered companies with capital expenditure in excess of the annual investment allowance of £1m.
Tackling late payments
Late payments are a scourge to small businesses and are notoriously the cause of cashflow headaches and sleepless nights. It’s a widespread problem, with a report by Xero suggesting that the cost of late payments to businesses was £1.6bn at the end of 2023.
In the Autumn Statement last year, the Conservatives put in place legislation that maintained that from April 2024 any company bidding for large government contracts must demonstrate that it pays its own invoices within an average of 5 days. Late payment is a particular focus area for Labour, which challenged the government to be more ambitious in tackling the problem.
Labour has pledged to legislate to tackle late payments, unlocking £20bn in unpaid invoices. As Michelle Denny-West says: “The major challenge facing SMEs is the complexity that change brings, coupled with the uncertainty caused by a potential change in government.”
The hope is that all the contenders for the next government will maintain a focus on measures that directly support small businesses and incentivize more entrepreneurship in the UK.
We can expect the date of the election to be announced in the next few months, if not weeks, and there is a lot for small businesses and accountants to get their heads around. While we would expect the Conservatives to build on what they laid out in the Budget, it will be fascinating to see the other parties’ counter-policies, as they gain the confidence to share more details during their campaigns.
This article first appeared in the Financial Accountant magazine May/June 2024.
Read next: A beginner’s guide to the taxes you’ll hear about this election season.
