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The Budget – what does it mean for SMEs?

On Wednesday George Osborne delivered his fourth budget, which included a small cut in corporation tax, a large rise in infrastructure spending, more austerity, and much else besides.

As the days unfold the announcements will be examined in great depth, but the biggest question for entrepreneurs is “will this budget help my business?”

For a small firm, the immediate headline-grabber is national insurance. The chancellor said the government will take “the first two thousand pounds off the employer National Insurance bill of every company…it will mean that 450,000 small businesses – one third of all employers in the country – will pay no jobs tax at all.”

On the face of it, this sounds like very good news for entrepreneurs. It’s even conceivable that some smaller employers will receive a double-benefit – firstly, more cash in the back pocket, and secondly a simpler tax situation leading to less time and money spent on accountants. Or that’s the theory.

However, a wider question can be asked: “how can any budget help my business?”

There are three reasons why a pessimist might conclude “it can’t”.

Firstly, the measures introduced don’t always work in the way they were intended to. For example, the Enterprise Finance Guarantee scheme, introduced in the 2009 pre-Budget report, was expected to help small businesses. Last year, however, the largest user of the scheme was RBS, the part-nationalised bank which pre-credit crunch was the largest company in the world in terms of assets. Things do not always work out as they were planned, and it is sensible to avoid counting chickens until they are hatched.

Secondly, the economic situation can cancel out new measures announced in a Budget. As everyone knows, times are tough for UK Plc, and were always going to remain tough, no matter what was inside Osborne’s red box. It is possible – perhaps even likely – that the UK will slip into a triple-dip recession later this year, making this the worst period in years for British business in decades. Bank lending will continue to be hard to come by; investors, buyers, and supply chain partners may be less willing to do business with a small and new firm than a large and long-established one. In other words, the drag of the current UK economy could outweigh any lift from the 2013 budget.

Finally, although budgets can be good pieces of political theatre, it is valid to question how big a difference any budget can make. Speaking last year, John Philpott, then Chief Economist at the Chartered Institute of Personnel and Development, said: “Budgets rarely have a big, or at least noticeable, short-term impact on economic developments. This is partly because Chancellors of the Exchequer, for one reason or another, normally have limited room for manoeuvre so that any changes they make to taxation or public spending are either small relative to the size of the economy or take time to have an effect.”

All of this can seem rather depressing – but it needn’t be. Just because the macro-economic picture is bleak, it doesn’t mean that smart firms can’t thrive. General Electric, IBM and General Motors all started during a recession. There are dozens of ways entrepreneurs can thrive, including working in a “counter-cyclical” industry, exporting to territories with stronger economies, or simply out-thinking their rivals. Which is to say that despite all the headlines generated by today’s Budget, the red box is less important to you than the way you run your business.

SteveMoore Steve Moore is Marketing Manager at Business Environment