Will the 2014 Autumn Statement Boost SME Growth?
3rd November 2014
In an extremely political, pre-election Autumn Statement, the Chancellor George Osborne announced measures that will please many of his constituents while upsetting a few others with planned tax increases for large multinationals (“the Google tax” on profits that are “shifted” overseas) and for the high street banks. There was a number of measures designed specifically to help small and medium enterprises (SMEs).
While this may seem like good news for the 791k SMEs that are located in the South East, many of the measures involve carefully calibrated state guarantees for limited periods rather than actual giveaways. This is in line with the Chancellor’s focus on fiscal consolidation rather than on measures to boost economic growth.
The new measures included:
-i) An additional £900m for the state-backed British Business Bank which was set up in 2013:
– £400m government-backed venture capital funds to invest in high growth SMEs;
– £500m of new lending guarantees for its Enterprise Finance Guarantee scheme under which the government guarantees 75% of an SME’s bank loan and the lender the remaining 25%. In principle, both of these measures are good news although it remains to be seen what the take up will be.
ii) A one-year extension of the Funding for Lending Scheme to boost bank lending until the end of January 2016. Under this scheme, banks can borrow funds cheaply from the Bank of England before on lending them to customers. Last November, the incentives were refocused away from mortgages and towards SME lending. So far, this scheme has proved disappointing but the SME focus may help.
iii) Tax relief was increased from 225 per cent to 230 per cent on Research and Development (R&D) expenditure by SMEs. While this is a positive measure, the improvement is quite marginal.
iv) Peer-to-peer (P2P) lending and crowdfunding. From 2016 individuals lending to established SMEs through P2P platforms like Funding Circle will be able to offset any losses from say bad loans against P2P income. The government is currently consulting on whether to include loans provided through crowdfunding for startup and early stage SMEs within tax-free individual savings accounts. More could have been done to promote P2P lending (for example, why not introduce P2P tax relief earlier?) and crowdfunding to provide more competition for loans to SMEs.
v) Business rates. The cap on the inflation-linked increase in business rates to 2 per cent will be extended for another year which helps.
However this does not solve the inequity of business rates being based on dated and overinflated property prices. A review of the UK’s 400-year-old business rates system was announced and is not expected to be completed until the 2016 Budget.
Overall, will these measures boost SME growth?
While some SME sectors (eg research intensive) may benefit, the overall verdict is that the Chancellor has missed a great opportunity to provide a bigger boost to overall SME growth and thus UK output.
The Business and Local Government Data Research Centre is a consortium of research and data analysis specialists from the universities of Essex, Kent and East Anglia. The Centre is analysing datasets from different sources to shed light on how local economic growth can be encouraged by, among other things, identifying potential high growth SMEs, encouraging new sources of funding (like crowdfunding) and by bringing the shoppers back to our ailing High streets.
Read more about our research streams on local economic growth and the regeneration of the High street.