The UK’s Conservative party has traditionally prided itself on being a strong supporter of business.
But ahead of chancellor Jeremy Hunt’s Budget on Wednesday, directors of small businesses expressed concern over high costs — including interest rates — an impending rise in the living wage, a shortage of skilled workers and difficulty accessing tax breaks intended to fuel investment.
The frustration of business leaders was clear last week as Stephen Phipson, head of manufacturers’ group Make UK, called for “political and policy stability”.
“Five prime ministers in eight years and 15 business secretaries in 15 years is no recipe for this,” he told a room of business people. “Any of you running businesses this way would have gone bankrupt.”
After what Phipson called a “ticker tape of announcements”, including “26 changes in corporation tax since 2019”, the directors of three companies from the hospitality, manufacturing and recruitment sectors describe the challenges they face.
Hospitality
“I don’t think [the government] are really sitting down and talking to small businesses in any detail about the pressures that we’re facing,” said Julie Gingell, managing director of two pubs and three Starbucks franchises in London’s Docklands, which employ about 150 people.
“Without government realising that we need a little bit of support in the short term to be able to create more wealth in the long term, they’re actually the biggest barrier to our growth,” she added.
The past few years have been “like business boot camp” for directors dealing with the combined challenges of the pandemic, soaring energy prices, high inflation and rising interest rates, said Gingell.
The increase in the national living wage due in April will have a knock-on effect on higher pay bands, wiping out the profits in one of her businesses, she added.
She is also worried about the expected 6 per cent rise in business rates for high street businesses and is hoping for measures to offset the cost increases.
Gingell said the debts small businesses like hers are carrying since borrowing to survive the pandemic are another major concern, especially after the big jump in interest rates in the past two years.
“Last year, we paid a third more in interest even though we paid off a fifth of our Covid loan,” said Gingell, adding that being allowed more time to pay off their taxpayer-backed pandemic loans would help businesses to focus on growing.
“Smoothing our Covid hangover and the debt we’re still carrying would allow us to have a little bit more flexibility and to maybe start investing slightly earlier, even though the government is putting these financial pressures on us,” she said.
Manufacturing
The high cost of borrowing means that “a lot of the time the only solution is to innovate”, said Mitchell Barnes, founder and chief executive of RYSE 3D, a manufacturer in Shipston-on-Stour, Warwickshire.
The government should give more support to encourage capital expenditure and research and development, said Barnes, whose company makes parts for high performance “hypercars”, top of the range luxury sports cars.
The support must also be easier to access, he said, adding that he faces “a lot of pushback” when submitting claims for R&D tax credits. “We employ a consultancy to do our R&D claims for us because we haven’t got the time to fight the claims,” he said.
Barnes welcomed the full-expensing tax break made permanent by the chancellor in his Autumn Statement.
He added that large companies benefiting from Hunt’s announcement of more than £2bn of funding for the automotive sector in November should have to spend it with UK suppliers. “Otherwise, you may as well take that and go and give it to China and Europe.”
Barnes is aiming to expand his workforce from 15 to 70 this year. He will have to use “extraordinarily unorthodox” methods to do this because of a skills shortage, he said.
“Because we were struggling to find competent manufacturing staff, we’re actually . . . hiring people who worked in coffee shops or restaurants”, who are used to following a process within a time limit and can be trained, he said.
Recruitment
“We know there’s a lack of skilled workers out there,” said Nella Share, director at MET Recruitment, a 23-person business in Dudley in the West Midlands.
After a labour shortage and recruitment boom coming out of the pandemic, things have returned to a more normal state, she said. Until then it had been “very difficult to find the right candidate”.
Share, who recruits across a range of sectors including manufacturing and sales, would like to see an end to the tax cliff-edge that saddles middle-income families receiving child benefit with huge marginal tax rates.
“It’s increasingly difficult for working parents . . . and the current scheme is just not practical for single parent households,” she said.
A planned legal change to force employers to consider flexible working requests from staff may also help to tap “a pool of economically inactive people”, she adds.
Hunt is expected to cut income tax or national insurance. Reductions in these taxes are “always positive” for a business focused on getting people into work, said Share before cautioning that a penny in the pound decrease would have only a limited impact during a cost of living crisis.
Any measures to reduce the cost of car insurance and fuel duty would also be welcome, said Share, whose recruits generally earn between minimum wage and £65,000 annually. Hunt is expected to freeze fuel duty, which has not been raised since 2011.
Share agrees with Gingell that the previously announced increase in the national living wage will be a huge threat to smaller businesses, one of which told her its wage bill was about to increase by £50,000. “It’s going to take them to the wire,” she said.