Sunak pledges to cut business tax in Autumn Budget

Sunak pledges business tax cuts at CBI Annual Dinner (l-r Lord Bilimoria, Sunak, Tony Danker)

Rishi Sunak vowed that business tax cuts are to come in this year’s Autumn Budget.

He made the pledge at the Confederation of British Industry (CBI) dinner on 18 May ahead of a corporation tax increase from 19p to 25p next year.

He told the audience of business leaders: “We need you to invest more, train more and innovate more. And as I’ve said previously, our firm plan is to reduce and reform your taxes to encourage you to do all those things. That is the path to higher productivity, higher living standards, and a more prosperous and secure future.”

In his own speech, CBI president Lord Bilimoria said that the government must help businesses to invest in “these uncertain times” such as extending the Recovery Loan Scheme, with a view to creating a long-term replacement. He cites that energy prices have gone up 500 per cent in a year while the price of shipping and materials has gone up by 20 per cent.

What inflation means for small businesses

The announcement coincides with ONS figures that show inflation rose to nine per cent in April, the highest level in 40 years.

A lot of the focus has been on the cost of living crisis for households, with much less attention paid to the effects on businesses, especially the smaller ones. Climbing costs have caused strain alongside the national insurance rise, issues with suppliers and increased labour costs. Energy costs are expected to go up again in October, with inflation expected to reach ten per cent later in the year.

“Small firms in particular find it hard to pass higher operating costs onto customers, fearing that doing so will hamper competitiveness,” said Martin McTague, national chair of the FSB.

“More and more are being left with no choice, however, as inflationary pressure collides with an increasingly tight labour market, making it harder and harder to find the right people, and pushing up the wages needed to keep them.”    

The cost of running a business crisis is arguably as much of an issue as Covid-19, with no government support akin to the emergency grants and loans made available during the pandemic. But how else is it affecting SMEs? Experts from various business groups share their thoughts.

The effects of rising costs on small businesses

Business groups have echoed the lack of attention businesses have been getting around the impact of rising costs.

Data from Klaviyo has revealed that 77 per cent of small and medium business leaders are concerned about the cost of living crisis. A significant 58 per cent of the 500 SMB owners surveyed say they have seen reduced customer spend negatively impact their business. Over half (51 per cent) are expecting customers to shop less while 40 per cent expect them to choose cheaper options.

Traditional funding routes may become more difficult to access too. Douglas Grant, Group CEO at Manx Financial Group PLC, said: “We believe that demand for working capital, which has already reached unprecedented levels, will soar even further as more businesses desperately require liquidity provisions to counteract rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds. With the cost of borrowing set to increase, many SMEs are struggling and will continue to be challenged this year.”

Retailers were among the hardest hit during the height of Covid-19 and now that consumers are holding on to their cash, it’s set to become even worse.

Bira‘s CEO Andrew Goodacre said:Inflation at these levels, the highest for 40 years, is a new challenge for many independent retailers. Whilst there is understandable focus on the cost of living, we would urge the government not to forget about targeted support for businesses also struggling to deal with the extra costs due to inflationary pressures.

“Retailers are doing all they can to reduce the impact on prices for shoppers which means reduced profit margins for everyone. We would like to see this year’s 100 per cent increase in business rates reversed and some way of helping businesses manage the rising costs of energy,” he said.

Late payments on the rise

As well as difficulties through increased costs, cashflow struggles have intensified through an increase in late payments.

Late payments silently grew over the pandemic and these problems have persisted as household finances have tightened. In fact, over a quarter of SMEs have said that late payments have become more frequent since the cost of living crisis began, according to Barclays.

“Our debilitating poor payment culture worsened over the pandemic,” said McTague. “Here we have an area where government can take action – by making audit committees directly responsible for supply chain practice – without it costing a penny.”  

>See also: How to deal with late payment

What are the business solutions of the cost of living crisis?

Many business experts are calling on further action from the government such as the aforementioned loan schemes and a higher ceiling for business rates relief. The FSB has also proposed extending the energy support issued via the council tax system to the rates system and installing a sick pay rebate for the smallest businesses.

 “More widely, with so many firms lost over lockdowns, we need policymakers to come forward with the Enterprise Strategy that we were promised a long time back – clearly outlining how, now we’ve lost the New Enterprise Allowance, government intends to spur those thinking about starting up to turn vision into reality, thereby shoring up our already floundering recovery,” said McTague.  

Chirag Shah, CEO and founder of Nucleus Commercial Finance has some suggestions about what firms themselves can do to deal with the crisis. “Businesses will need to box clever, especially as they come under increasing pressure to help their own employees navigate a situation in which their take-home pay is being eroded at pace. This may well include avoiding stoking the wage spiral by offering different workplace incentives such as bonuses to attract and retain staff.

“But none of this is cost-free. SME business owners need to take stock of their financial positions now and identify accessible finance options should they be required. It’s going to be a bumpy few months ahead, but identifying a clear plan now will help them successfully navigate out the other side.”

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