Chancellors throughout the ages have loved to tinker. Tightening eligibility criteria for this relief, redefining that exemption, closing loopholes (and accidentally creating new ones).
But, if you’re looking to raise serious cash, you need to go and see the Big Three. Nearly 60 per cent of the UK Government’s entire income comes from income tax, national insurance contributions (NICs) and value-added tax (VAT). So it’s no surprise that the Autumn Statement is looking to them to deliver.
Take national insurance. Described by the Fraser of Allander Institute as, “by far the most significant measure [in the Autumn Statement] in terms of business taxes”, the freezing of the threshold for employers’ NICs at £9,100 until April 2028 will raise an additional £5bn a year from businesses.
At a time when the FSB’s latest small business index shows that more small firms are still letting staff go than are hiring – and they expect another decline in their workforce in the next quarter – making employment more expensive won’t turn this trend around.
Also, with the cost-of-living crisis continuing to envelop households across the country, every pound spent in employment taxes is a pound that can’t go into raising staff wages.
So what about VAT? Small businesses already see it as one of the largest barriers to growth. Indeed, it was cited by nearly a quarter of those surveyed for our FSB report on tax reform last year.
It’s therefore a worry for the smallest operators that the VAT registration threshold will be frozen at £85,000 until 2026. Doing so when inflation is at, say, 2% is one thing. But when it’s running at over 10%, that freeze becomes a significant real-terms cut.
This means many more of the smallest operators will be dragged into the system against their will. Or, perhaps worse, will scale back their operations and growth plans as they try to remain below the threshold.
Neither is an outcome conducive to rekindling economic growth.
When it comes to income tax, of course, we’ll need to see what the Scottish Government says when it unveils its own Budget next month.
We’ve become used to dealing with different tax bands and thresholds in Scotland and it’s not clear if Holyrood ministers will employ the same tactic of freezing thresholds for middle earners. That said, I don’t think anyone would be in the slightest bit shocked if the threshold for the top rate was cut from £150,000 to match the new £125,000 level that will apply elsewhere in the UK from April.
Just as in Westminster, though, the challenge for Scottish ministers is to raise sufficient revenue while not stamping out any nascent economic growth.
So, on top of keeping taxes and other costs down wherever possible, they will need to pull some supply-side levers.
Perhaps most importantly, they need to allow small businesses to get on with doing what they do best – whether that’s innovating, growing or simply surviving – without onerous regulations getting in the way.
We have argued for some time that there should be a moratorium on all but the most essential new regulations – at least until we are back out of recession. Further, the financial and resource costs of anything already planned should be fully examined, with a view to pausing implementation.
Rather, any reforms should be focused on freeing businesses to capitalise swiftly on gaps in the market or opportunities to pivot their operations. Streamlining the planning system, including permitting more things like changing the use of a premises without application, would be an obvious move.
And, while the true value of spending consequentials is never an uncontroversial topic, the fact that £1.5bn is coming to Scotland as a result of the Autumn Statement means December’s Scottish Budget can blunt a few of the harder edges of the Emergency Budget Review. They should now, for instance, be able to reverse some of the planned cuts to employability schemes and economic development.
There’s no denying that finance ministers in Edinburgh and Westminster have a very tough hand to play. Stabilising the nation’s finances is vital – but that can’t be done at the expense of the very businesses on whom long-term recovery depends.
Colin Borland is director of devolved nations for the Federation of Small Businesses
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