While the FSB understands that this is an emergency budget for emergency times and that difficult decisions have to be made to tackle the debt, it has urged the Chancellor to temper this with measures which will inspire confidence in the future and allow businesses to innovate, grow and employ.
There is a distinct possibility that VAT will be increased. If this is the case, the FSB urges the Government to recognise that a decision on timing is vital for small firms' cashflow. The move to reduce VAT to 15% in 2008 cost the average small business £1,500 in administration alone.
Small businesses do not have the financial buffers available to be able to absorb an increase in VAT as big businesses do. The FSB has urged the Government to include a sunset clause which would allow small firms to plan for the eventual reduction and send a strong message that while tax increases are necessary in the current climate, that this Government is a low tax administration.
The FSB also opposes any major increase in the Capital Gains Tax (CGT) for businesses and entrepreneurs as it would stifle long-term investment in small firms. The FSB believes that CGT on business activity should remain at 18% and a generous taper relief be reintroduced to help savers and long-term investors.
A fifth of small firms believe that National Insurance Contributions (NICs) and PAYE taxes are their biggest obstacle to growth. Given this, the FSB is arguing that while it is important that the Government cuts the deficit, something that over 90% of FSB members agree with, it must not be at the expense of the recovery or mean a hike in taxes for small businesses.
To encourage small firms to employ staff and grow, the FSB urges the Government to go beyond the Conservative manifesto proposal to cut employer NICs for new companies only. The need to pay NICs should be negated for existing firms in addition to start-ups.
John Walker, national chairman, Federation of Small Businesses, said: "While the FSB does not want to see taxes increased we understand that reducing the budget deficit is a key priority. The Chancellor must use the Budget to set out his pro-business credentials and offer something to stimulate growth. Private sector growth is the best method of cutting the deficit, keeping taxes low and absorbing the staff that will lose jobs in this round of budget cuts.
"It is imperative that any changes to Capital Gains Tax or VAT go hand-in-hand with an ambitious plan for helping economic growth through allowing small firms to employ, grow, invest and innovate.
"Proposals to give new firms a National Insurance holiday do not go far enough and will not help those businesses who have been running for a couple of years and want to expand by taking on staff. By cutting employers’ NICs payments for established companies that want to take on staff, the Government would benefit from the creation of new jobs and the additional revenue from income tax and employees NICs contributions that would be paid, while freeing up business cash-flow enabling it to grow.
"With the four main high street banks holding 83% of the SME market, there needs to be more competition for credit. This will help drive down the price of credit which we believe is putting businesses off applying for finance.
"We look forward to the Budget on 22 June and hope that the Chancellor uses this opportunity to ‘think small first'."
