Small and medium-sized enterprises (SMEs) reflecting on Philip Hammond’s first Autumn Statement may feel that what the new Chancellor of the Exchequer gave with one hand, he took back with the other, just like so many of his predecessors at 11 Downing Street.
The positives for SMEs
• A cut in corporation tax
• Another freeze on fuel duty
• Further funding for the British Business Bank
• Investment commitments in many areas such as broadband, infrastructure, exporting research and development
• Business rate relief for small businesses in rural areas
The negatives for SMEs
• Urban-based SMEs over a certain size missed out on business rates relief and now face higher bills
• Increases in the national living wage and insurance premium tax will raise costs for almost all SMEs at a time when margins are already paper thin
• Despite the announcement of new investment in faster broadband infrastructure, many SMEs worry that basic connectivity issues in some parts of the country are not being confronted.
The UKs economic outlook
The Office of Budgetary Responsibility has made gloomy forecasts for growth, public sector borrowing and household finances. Although many experts disagree with the predictions, the state of the economy is still a big worry for UK SMEs.
Almost six months after the UK voted to leave the European Union in June’s referendum, the impact of Brexit – and the period running up to it – remains unclear
That represents a major headache for business owners as they look to plan strategic development over the next few years. Close Brothers’ own research – its quarterly Business Barometer – suggests around 40 per cent of SMEs are concerned that Britain’s decision to leave the EU could adversely affect them; asked why, the most common answer is that SMEs fear Brexit-linked uncertainty.
Will that anxiety deter SMEs from investing in their businesses over the next 12 months and beyond? Well, in the Close Brothers research, only a third of SMEs said they were planning to seek funding for business investment over the next 12 months; that number seems unlikely to increase in the short term, given the deteriorating outlook anticipated by the Office of Budgetary Responsibility.
Sir Damon Buffini is the former private equity executive who the Government has asked to head up an investigation into “patient capital”.
The Chancellor and other ministers remain concerned that too few SMEs have good access to capital funding for investment – particularly as they move from the start-up phase of their businesses to scaling up.
This debate has been going on since the financial crisis, which triggered a pull-back by the banks from funding SMEs. The extent to which capital is available to both start-ups and scale-ups is a moot point – there’s a difference between SMEs not wanting to invest and not being able to because of a lack of funding – and Sir Damon will now have to take a view for himself.
It makes sense for SMEs to move towards financing strategies that are fit for the current times. They need flexible funding arrangements that enable them to react quickly to market volatility and new news as it emerges. That’s more likely to mean credit facilities such as invoice finance and asset finance, which can be scaled up and down as necessary according to the business trading – rather than long-term capital investment from a third party institution.
SMEs would be wise to follow Mr Hammond’s cue. The new Chancellor’s mixed bag of tax rises and business supports reflects his uncertainty about where the UK economy is now headed. Growing businesses need to hedge their bets in a similar way, with bespoke financing arrangements that are flexible and scalable.