2021 Budget: What Rishi Said – and What it Actually Means for SMEs

In the Autumn Budget in October 2021, Chancellor Rishi Sunak announced more than £30 billion of investment to support the current and future economy in a post-Covid world.

It’s a roadmap on a grand scale – but what is its impact on SMEs? There are 6 million of them in the UK, contributing a huge 47% of the economy’s revenue, and every one of them stands or falls by the state of its cash flow.

To put numbers on that, approximately 57% of small business owners have experienced problems with cash flow, and 38% of SMEs have had cash flow problems that have left them unable to pay their debts. One in seven owners have even been left unable to pay employees at some point because of cash flow issues.

So, in a world where SMEs are still battling the after-effects of the pandemic and cash flow is king, how does Rishi’s budget support them – if at all?


Business rates reduction – but not for all

The Chancellor’s 50% cut to business rates sounds like good cash flow sense.

But in reality, the cut is only applicable to retail, hospitality, and leisure businesses – and only in England. If you’re any other kind of SME in a high street location, or using shared space or in a small unit, for example, or you’re in Scotland, Wales, or Northern Ireland, you’ll pay full whack or will be getting the relief anyway.

Fuel duty freeze (but what else is going up?)

Fuel duty is to remain frozen at57.95 pence per litre UK-wide for 2022-23, which, on paper, will enable SMEs to continue to benefit from a lower cash outflow for fuel.

But here again, there are wider factors that must be taken into account. The fuel freeze was first introduced 12 years ago, so in reality nothing much has changed to boost cash flow further.

In addition, wholesale fuel prices have shot up, so the price at the pump has skyrocketed, regardless of the duty. Whilst many SMEs are undoubtedly saving with less travel currently and having possibly introduced electric fleet vehicles, this may still have an impact.

Funding you have to pay back

There will be a six-month extension to the Recovery Loan Scheme until 30 June 2022, which, as it makes amounts available of up to £2 million, sounds like a solid way to improve cash inflow. Indeed, borrowing under £250,000 will not require a personal guarantee either.

However, loans can be complex financial instruments, and managing them to ensure they are paid back punctually but cash-efficiently is an area of significant financial risk for SMEs that do not have appropriate in-house expertise.

Funding you don’t have to pay back

For SMEs outside of London looking for early-stage finance, the Government is making £150 million available in funding through the British Business Bank’s Regional Angels Programme.

Paying for start-up essentials when the business isn’t actually earning any money is a recipe for instant negative cash flow, so this funding will be very welcome for many.

Of course, if you’re an established SME, or you’re not outside London, this source of cash inflow is not available to you.

And now the cash flow killers…

Modest gains and small victories aside, the Budget also presents some significant price-hikes that could see SMEs’ cash flow seriously impacted.

Minimum wage increases, for example, will apply across all the key demographics, from 16 to 23 and over.

Employer National Insurance will also rise in April 2022 by 1.25% (with an equivalent rise in dividend tax), and a VAT rise back to the pre-pandemic level of 20% will take place at the same time.

A plastic packaging tax from 1/4/22 to drive more sustainable packaging will likely cause more administration for some and supply chain price increases for many. And, after this all settles, there is announcement of the increase in corporation tax rates from 1/4/23 on annual profits over £50,000 (on a group basis)

In short, people are going to cost more to employ, purchases are going to cost more at the point of sale and if you make a profit as a business owner, the amount that ends up in your hands will be less due to higher taxation!

Deal or no deal?

So, in sum total, is this Budget a good deal for SME cashflow, or no kind of deal at all?

The underlying challenge for many SMEs is understanding the “cocktail effect” of these changes on their specific business, their specific operating model, and their specific cash flow dynamics. Liability or opportunity – often, only a financial expert can truly tell.

And that’s a real problem, since many SMEs are short on in-house finance expertise – not only because employing it is costly, but because of absence, redundancy, and job-shifting caused by Covid.

Not that you need it in-house anyway, of course. Put it this way, when Boris needs financial advice, he knocks on number 11’s door.

When SMEs need it, they just knock on ours.

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