SMEs warn government goodwill at risk without urgent Autumn Budget action on costs
New research has revealed that while SME confidence in government remains fairly lukewarm, this support is fragile in the face of mounting economic pressures and uncertainty – and may well turn sour without urgent action on tax and costs at the Autumn Budget.
The survey of 1,000 SME leaders and decision makers, commissioned by FTSE 250 Paragon Bank, found that 42% of SMEs want the government to prioritise employee tax and costs in the upcoming Autumn Budget. Business tax reform (36%), business rates (35%), innovation and investment incentives (30%), skills and training (27%) and access to finance (26%) are also high on policy areas SMEs want the chancellor to address in the upcoming Budget.
SMEs have been among the most impacted by measures implemented in the previous Budget. The survey revealed that the Employer National Insurance Contributions (NICs) increase impacted 73% of SMEs, followed by the corporation tax rise (69%), national minimum wage increase (64%) and capital gains tax increase (59%).
Additionally, nearly half of SMEs (47%) claimed that rising operational costs was the biggest challenge their business currently faced, followed by employment costs (36%) and access to finance (29%).
Strikingly, despite these cost hikes 45% of leaders and decision makers rated the Government’s support for SMEs in its first year as ‘good’ – although this varied significantly across sectors, with just 15% of construction firms giving a “good” rating, compared to 61% of businesses within farming and agriculture.
When asked whether they feel confident government understands the needs of their sector, 61% of SMEs overall said they felt ‘very’ or “somewhat” confident, though again, sectors were divided – with less than a quarter (24%) of those in the arts and entertainment sector having confidence, versus 46% of those in education.
Despite these challenges, SMEs remain resilient. Nearly two thirds (65%) say they are optimistic about their own business prospects over the next 12 months, though only 47% are optimistic about the UK economy as a whole.
Phil Hughes, deputy managing director of Paragon SME Lending, said: “SMEs are the backbone of UK business and when they fail, the economy fails. This latest research reveals their clear message to government: adding more cost and taxation will only hinder growth and innovation. As a lender working with 16,000 SMEs at the coalface – from manufacturers and farmers to construction companies and hauliers – we see firsthand the headwinds they face, and whilst they remain adaptable, ongoing Budget uncertainty only intensifies an already challenging operating environment.
“While SME sentiment towards government is currently somewhat favourable, policymakers shouldn’t count on it for long. To earn long-term confidence the chancellor urgently needs to give SMEs clarity on how the government is going to kickstart this promised growth and ease the burden of increasing operational costs.”