Pre-Budget Report 2008: business reaction

25 November 2008

Business groups have given the pre-Budget Report a guarded welcome.

With many businesses facing extremely difficult trading conditions, the Chancellor's measures on business tax and funding support won general approval.

John Walker, the national policy chairman of the Federation of Small Businesses, said: "This pre-Budget Report is a sign of the importance of small businesses to the UK economy. The government's Small Business Finance Scheme, which closely resembles the Small Business Survival Fund the FSB has been calling for, will provide a vital cash boost to businesses struggling with rising costs and a lack of credit.

"Many of these measures, such as giving businesses longer time to pay bills and offsetting losses, will give small businesses a welcome breather from the taxman and allow them to concentrate on sustaining their business, supporting their staff and growing the economy in the long term."

Phil Orford, chief executive of the Forum of Private Business, also applauded the setting up of funds to give smaller firms easier access to finance.

Mr Orford said: "The Chancellor has announced three £1 billion initiatives to help the cash flow of small businesses. Two of these initiatives should provide accessible funds in the first quarter of 2009, one via the European Investment Bank, delivered by the high street banks, and the second new small business finance scheme guarantees, underwritten by the government and the banks. These schemes are welcome, provided that the banks make them accessible, and that small businesses are proactive in seeking them out."

However, Mr Orford voiced concern that the measures are only to be temporary: "We are disappointed that these initiatives are both temporary and short-term, and that much of what has been given today will be clawed back post 2011. In addition to short-term liquidity solutions, we were hoping for medium and long-term policies to provide more certainty for business owners."

On the cut in VAT, Stephen Robertson, the director general of the British Retail Consortium, said: "This is a modest but welcome boost for hard-pressed households. It must be just one of a range of reviving measures including cuts in income tax and interest rates. Getting the economy up and running is vital and, in this fiercely competitive climate, our members will certainly be passing this on.

"Shops will cope, but implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year. Small retailers will find all this particularly difficult to accommodate."

Martin Temple of the EEF believed the Chancellor had gone some way to meeting the needs of business.

Mr Temple said: "The big question is has this taken business forward. The government had to meet three criteria with this statement in terms of being temporary, targeted and timely. It has gone some way towards meeting the first two of these with a range of measures to help business cashflow.

"However, in terms of being timely there are a number of factors at play before this can be delivered. In particular, it is essential that government takes action to ensure that the acceleration of capital spending is carried out quickly and is directed towards ensuring that UK based companies benefit. It is also vital that pressure is maintained on the banks to deliver support for lending."

A more mixed reception to the pre-Budget Report came from David Frost, director general of the British Chambers of Commerce.

Mr Frost thought the Chancellor had proposed some valuable specific measures but had missed a broader target.

He commented: "If I were marking the Chancellor's report card, I'd say 'could do better'. There are a few good announcements in there like deferment of the Small Business Rate of corporation tax, allowing businesses to spread out the payment of their tax bill, and the new business finance scheme.

"The proposal to increase National Insurance Contributions is wrong. At the very time when the economy should be coming out of the recession, businesses will face an extra tax on employing people."

Mr Frost added: "Businesses will wonder why he didn't just restore empty property rate relief in full, instead of only raising the threshold for a year. Restoring relief in full would have provided the vital stimulus to the hard-hit construction industry.

"Fuel duty increases should have been scrapped. What the Chancellor has announced today means that we could see two increases in fuel duty in a year. In the end this was billed as a fiscal stimulus to inject confidence into the economy. Time will tell if this has been achieved, but I can't help feeling that the government has missed an opportunity."