Did the Budget go far enough?
A week on from the budget announcement, Cashflow UK Director, Kevin Weaver, reflects on whether Darling’s second budget has gone far enough to support small businesses in surviving the recession.
So soon after the budget, business owners will have had a chance to reflect on the announcements and consider their impact. The general feeling throughout the business community is that Darling has missed a vital opportunity and the budget has not gone far enough to support small firms in surviving what is expected to be “the worst economic downturn since World War Two”1.
There is little doubt that Darling's decision to keep VAT at 15 per cent, back the credit insurance industry, extend the tax deferral payment scheme and allow businesses to access £400mn in unclaimed rate relief will go some way to easing the cash flow burden for small businesses.
However, whilst government central departments have committed to paying suppliers within ten working days through its ‘prompt payment scheme’, the budget neglected to put any measures in place to prevent the ongoing burden of late payment. With UK businesses now owed a staggering £26bn in overdue payments, this issue is proving to be one of the biggest barriers to a healthy cash flow and failure by the government to tackle the issue head on will no doubt have a further detrimental affect on small businesses.
There was also little mention of, and no changes made to, the Enterprise Finance Guarantee (EFG), an initiative that was designed to support bank lending to good-but-newly-cash-strapped businesses. The budget report suggests eligible applications have been received from 2500 businesses, with a total value of £290m, but we don’t know how many of these have been approved. However, instances of bank managers without knowledge of the scheme, or who simply refuse to use it, are once again putting unnecessary financial burdens on the already over-laden shoulders of business owners.
Whilst the chancellor’s announcement to improve regulation of the banking industry is positive, more needs to be done to ensure initiatives such as the EFG are more easily understandable and accessible to small businesses. As the Federation of Small Businesses commented, an independent body tasked with mediating between businesses and the banks to increase access to finance and aid better communication would have been welcome.
Kevin Weaver
Director, Cashflow UK
1 International Monetary Fund
