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Budget a mixed bag for SMEs

Smaller firms have broadly welcomed the Budget’s continued focus on growing the economy but would have liked a more targeted boost.

In the immediate aftermath of the Chancellor’s announcements, the focus was on tax; the granny tax, cuts to the top rate of income tax and even an increase on the tax on pasties.

But when the economists are done dissecting, politicians rowing and SMEs have had time to understand what it means for them, the picture is still far from clear, as the overall feeling was that the Budget lacked specifics for those in the construction industry.

“The Budget was a mixed bag for construction and maybe a missed opportunity to use construction as a driver for economic growth,” says Federation of Master Builders chief executive Brian Berry.

“The Chancellor said that it was a Budget to back business, but was it really a Budget to back construction?”

The initial reaction from SMEs in the industry was cautiously optimistic. “In the context of how much manoeuvre room the government doesn’t have, our reaction was a positive one,” says David Saffin, senior partner at consulting engineer ZBP.

“The Budget is trying to make the UK a better place to invest in and that has to be good news in the longer and medium term.

“While we may not be able to pinpoint particular short-term gains that we would all like to see, given the general environment I think it’s important that there is a direction of travel that the government sticks with.”

D-Drill managing director Julie White echoes Mr Saffin’s sentiments. “It was a satisfactory Budget for the construction industry.

“Like every industry, I am sure we were hoping for more but times are extremely tight and I do praise the ‘business-friendly’ tone, even if the rhetoric is sometimes more impressive than the reality,” says Ms White.

There were areas of good news for construction and particularly construction SMEs, including a commitment to reduce red tape, more spending on infrastructure, extra funding for the Get Britain Building fund and the presumption towards sustainable development in the National Planning Policy Framework.

Funding welcomed

“For us, the promise to spend more money on infrastructure is welcome and will be good for the industry, as will the fund to kickstart construction,” says Ms White.

“The reduction in corporation tax is very welcome. It means we can invest the money we save paying that tax back into the business on training and growing the company,” she says.

Meanwhile, Mr Saffin highlights how the government’s consistency of message and stability of direction will help SMEs in the future.

“The direction of travel being followed by the government can create both confidence in the marketplace and allow a better free flow of capital that will feed through to project work and to other activity in the industry, which will trickle down and allow SMEs to benefit from that in the medium term,” he says.

The presumption towards sustainable development in planning was also well received by Mr Berry and Ms White, although as with many of these announcements it was viewed with caution.

“The government has promised to create a culture of favouring sustainable development when it comes to planning, and while that is the right sentiment I will have to see it in practice before I am convinced,” says Ms White.

Areas of grey

Another announcement that will prove of interest to SMEs was the National Loan Guarantee Scheme, which will allow firms with a turnover of less than £50 million to borrow at a slightly cheaper interest rate than they would otherwise obtain.

But Mr Berry remains sceptical: “The announcement is a double-edged sword. Although it sounds quite good that the scheme is going to allow banks to cut interest rates, it reflects the failure of previous initiatives to help lending to SMEs,” he says.

Other specific announcements intended to help SMEs, such as the switch in the way tax bills are calculated for businesses with a turnover of less than £77,000, were received with a similar level of scepticism.

“This sounds good in theory but it can be open to manipulation from unscrupulous traders doing cash-in-hand jobs, which really damages some of our members who are having to compete with the edges of the informal economy,” says Mr Berry.

What was missing?

The biggest disappointments stem from what was left out of the Budget speech altogether. “A missed opportunity was not having more information on the future of the Private Finance Initiative or the successor to that,” says Mr Saffin.

“When that gets formulated it will get some private investment back into public sector projects, which is vital for those of us who are trying to see where the next six to nine months are going in terms of workload.”

The FMB has lobbied for a reduction in VAT on all home repair, maintenance and improvements work from 20 per cent to 5 per cent for some time, but instead the Chancellor extended VAT to include heritage work.

“When the Chancellor talked about simplification that meant increasing the scope of VAT to scrap zero rate for alterations to listed buildings, which was a huge disappointment. That could have been an opportunity to reduce VAT to kickstart repair and maintenance work,” says Mr Berry.

He also saw the lack of specific initiatives around the Green Deal as another opportunity missed by the politicians who once promised to be the ‘greenest government ever’.

Fuel duty was another area many SMEs would have liked more movement on, as it can often have a huge impact on their businesses. “I was very disappointed that the Chancellor did not freeze or even cut fuel duty, which is still a major issue for businesses,” says Ms White.

“Prices have risen significantly in the past few months and this was the Chancellor’s opportunity to provide a helping hand but he failed to do so.

“I know there is a lobby to say that we should use alternative modes of transport, but I’d love to know how one of my guys is supposed to get a one-tonne diamond floor saw in the first-class carriage of a train when he’s on his way to a job!”

There is a feeling that the next six to nine months will prove extremely important for the government to show it can attract investment into the UK, give specifics on its flagship policies and provide the market confidence needed for growth.

“The next six months will be critical, especially on housing,” says Mr Berry.

“If we don’t see first-time buyers being able to get on the housing ladder, if we don’t see a range of incentives to underpin the Green Deal, which is meant to be the flagship policy, people are going to start to ask if this government knows the direction it’s travelling in.”


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