With the Chancellor’s Spring Budget fast approaching, Menzies Business Services sector team look ahead to predict what Philip Hammond’s 8th March announcement could bring for the UK business services community.
Comments provided by Arinze Nwobodo and Mike Ayres
The amount paid in business rates will change dramatically in April this year following the revaluations which took place to reflect the changes in the property market. The problem here is that there will be a more than disproportionate impact on businesses in London and the South East as a result of these changes. Even with the cap on how much the bills can rise over the next few years, business rate increases of over 400% are predicted for some areas of Central London.
With rising inflation starting to seep into the economy from the weaker pound (increasing costs of inputs for businesses), the new national living wage, apprenticeship levy (dubbed as a stealth tax by some), and auto enrolment all coming into force over similar time periods, the increased administration and costs for businesses. This is especially so for SMEs who have a much smaller capacity to absorb such costs and thus could be detrimental. This could lead to a further fall in productivity as businesses’ marginal pound would go on such costs rather than investment.
It is therefore up to the government to assist business where it can especially in light of the current uncertainty hanging over the economy from the negotiations around its impending divorce from the EU. Business rates could therefore be revisited and one option would be to increase the rateable value under which the rates are unpaid or have different minimum thresholds for different parts of the country. This would also be a vote of confidence from the government and would show that it understands and is proactive to the issues which affect the SMEs.
Given the financial services sector and in particular London and the South East’s trade surplus with the rest of the country, the chancellor should aim to assist business in the capital as much as he can and not stand in the way of it especially in uncertain times. Such an adjustment coupled with other business friendly policies like the future fall in corporation tax rates should therefore free up capital for such companies to continue to invest in and grow their businesses which should ultimately be to the benefit of the economy.
Following on from Mr Hammond’s obvious love of productivity, we would like to see some tangible progress for the UK businesses.
Love it or hate it, we have become a world dominated by the internet and we are continually hampered by the slow speeds delivered to some parts of the country. The government has repeatedly promised to improve the broadband available. 95% of the UK should have super fast broadband (24-30 Mbps) by December 2017 and everyone will have the legal right to request 10Mbps by May 2020. But this isn’t enough.
We would like to see the removal of red tape to allow Openreach to start installing fibre to the properties. Pure fibre optic lines can offer stable gigabit (1000Mbps+) connections, all these baby steps are a waste of time. To continue being a world leader, the UK needs the infrastructure to support it and a national network of fibre cables directly to every home in the country should be considered as important as water and electricity.
A world leading gigabit network will enable businesses to function better, giving employees the ability to work efficiently from wherever is best for them and remain in constant connection to everyone else they need to be without leaving their home. This saves people time, encourages multinational businesses to headquarter in the UK creating jobs and relieves pressure on the transport network.
There are specific benefits for people based companies in the business services sector who rely on the fast transfer of large amounts of data. It will allow the increased use of technologies such as video conferencing, without any frustrating lags or delays, and can save many hours of travel time whilst also reducing a company’s travel costs and environmental impact.
The autumn statement saw Insurance Premium Tax (IPT) increased to 12% (which will take effect from June this year.). This was a further 2% increase and the third increase in 18 months. In 2010 IPT was just 5%. This is a stealth tax and hits all consumers as we are all legally required to pay for our buildings insurance on mortgaged properties and motor insurance on our cars. Specifically for businesses in the business services sector, insurance brokers work to minimise the impact on their clients as the consumer will not appreciate that the increase is not the brokers fault. Companies with the slimmest margins are likely to be impacted the most by this.
We would call on the government not just to hold IPT at this rate (we accept that a reduction is unlikely) but to offer a guarantee that IPT rates will not be increased by this government. The chancellor is right that the rates remain among the lowest across Europe, but this in itself is not an excuse to raise the rates; we are taxed elsewhere after all! We hope that the government is not following a programme of IPT increase to bring it in line with VAT which is the implication we see behind Mr Hammond’s comments.
Much is being made about the use of blockchain and one possible use is to assist with the tracing of government funds. Whilst this is not directly related to business services firms, blockchain is an area that is having a big impact on financial services across the world. There were encouraging words from the Rt Hon Matt Hancock last year regarding its potential implementation. A government leading the way in the use of technology such as this to better manage and track its finances, would also free up further funds to ensure that the city of London’s financial services firms can be encouraged to retain their presence in the capital and give them confidence to increase the volume of their operations in the UK.
Get more input on the 2017 Spring Budget implications for the Business Services sector by speaking to our sector team.
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