Budget day – business news 3 March 2021.
James Salmon, Operations Director.
Our members and other SME’s will be anxiously awaiting the Chancellor’s Budget day to see whether they’ll get the support they need to survive the final months of lock-down after such an unparalleled year marked by the pandemic, lock-downs, furlough and Brexit.
As vaccinations progress and restriction ease, faster than elsewhere around the world, optimism is returning but we are not there yet, and business still needs support and is emerging saddled with debt and reduced incomes.
The U.K. budget will however contain two clear messages. The government will continue to support households and businesses until the economy is reopened but higher taxes will eventually be needed to repair the hole in the public finances.
The recent roadmap and speed of the vaccine roll-out might mean that the outlook is better than many SMEs had expected. When polled in January and February, just over a quarter (27 per cent) expected the restrictions affecting their businesses to end by April 2021, rising to just under half (49 per cent) by June 2021.
SMEs are still weary of continued upheaval, and are braced for further short-term losses, anticipating an initial revenue drop of 7.5 per cent over the first three months of this year.
However, SMEs expect to see 8.1 per cent revenue growth in 2021, as vaccination programme continues to roll out at pace. Nearly four in ten (39 per cent) say they are optimistic about their business prospects.
While SMEs await news on the furlough scheme, 30 per cent are already planning to hire new full-time employees over the next 12 months, while just under half (49 per cent) plan to keep current staff levels.
A quarter (24 per cent) say their output has already surpassed, or returned to, pre-pandemic levels seen at the start of 2020, though caution remains about the months ahead.
The quarterly Barclaycard Payments SME Barometer also shows business sentiment is starting to look more positive, at 98 points out of a possible 200. While any score under 100 indicates negative sentiment, this is the highest score reported since the beginning of the pandemic. Sentiment has risen steadily over the past three quarters from a low point of just 79 points in Q2 2020 compared to an initial pre-pandemic high of 110 in February 2020.
Kate Hardcastle MBE, independent business expert, said: “SMEs have demonstrated their resilience and entrepreneurism to survive a chaotic time, but they still need support to come out the other side of this pandemic. In this Budget, SMEs will be hoping for continued Government support to help them get through the coming months. However, while there is certainly cautiousness about the months and even years ahead, the latest Barometer data from Barclaycard Payments suggest that there are stirrings of hope and a growth in optimism over the last four quarters, which could mark a significant turning point for many businesses.”
Budget set to deliver modest tax reform
The I says today’s Budget is likely to deliver modest increases in taxation, with an increase in corporation tax and freeze to the thresholds at which people pay the basic and higher rate of income tax expected to be outlined by the Chancellor. It adds that further changes to taxation will come on March 23, with the Treasury set to announce a number of consultations on potential reforms. Among proposals likely to be detailed on what has been dubbed ‘tax’ day’ are a levy on online retailers and an increase to the level of national insurance contributions paid by the self-employed.
The Telegraph looks at how Rishi Sunak might raise revenue without breaking the “triple tax lock” manifesto promise, saying he could tweak thresholds. EY’s Chris Sanger says the Chancellor has “many options if he’s looking to raise revenue in the future without changing the headline rate.
Meanwhile, BBC News says that while Conservative backbenchers are strongly opposed to tax rises, former party leader Lord Hague has said “personal and business” taxes must rise to help Government finances.
Elsewhere, a Telegraph editorial says the Chancellor may see an economic boom once pandemic restrictions are lifted, “provided he does nothing to hinder recovery”, adding that this means “resisting the pressure for tax increases” as he looks to balance the nation’s books.
The FT says that while an Office for Budget Responsibility forecast is set to outline an improved outlook, Mr Sunak “will still warn that tax rises are coming.”
Kwarteng: Budget should focus on growth not tax
While the Chancellor is reportedly set to turn to tax increases as he looks to rebuild the Government’s finances, Business Secretary Kwasi Kwarteng says growing the economy is “the real key”. He told LBC that the “best remedy for the deficit, the best remedy for the economy is to open up the economy, allow people to get on with their lives, allow businesses to start trading again.” Mr Kwarteng said an efficient vaccine rollout and the Prime Minister’s roadmap out of restrictions remaining on track could mean “there’s every chance the economy can bounce back, we can see strong growth at the end of 2021.”
He told LBC: “Obviously we have to balance the books over time, but I’m a low-tax Conservative”. Meanwhile, former Chancellor Lord Hammond warned Mr Sunak that immediate tax rises risked endangering any recovery, warning that as stronger economic growth is key, “we don’t want to choke that off”. Lord Lamont, another of Mr Sunak’s predecessors, said: “It wouldn’t be a good idea to have significant tax increases at this point”.
Sunak told higher taxes ‘are a form of austerity’
Matthew Lesh, head of research at the Adam Smith Institute, says that while the Chancellor is right to suggest Britain’s fiscal position is not sustainable amid a wave of pandemic-related spending, he is wrong to suggest tax increases are justified as the public is sick of austerity, saying: “Make no mistake: higher taxes are a form of austerity.” He reflects on reports that the corporate tax rate is set to climb from 19% to 25% by 2024, saying the increase could be “particularly damaging if it is not accompanied by a more generous system of capital allowances.” He adds that freezing income tax bands will effectively break a manifesto promise to not increase income taxes.
Furlough scheme to be extended
The Government will today announce it is extending the furlough scheme until the end of September, with Chancellor Rishi Sunak saying the move will help millions through “the challenging months ahead”. The extension means furloughed employees will continue to receive 80% of current salary, capped at £2,500 a month. Employers will be asked for a contribution of 10% from July and 20% in August and September. Access to grants will also be widened, making 600,000 more self-employed people eligible for Government help.
The CBI said extending the furlough scheme will “give businesses the chance to catch their breath as we carefully exit lockdown”, with chief economist Rain Newton-Smith welcoming increased support for the newly self-employed.
Mike Cherry, chairman of the Federation of Small Businesses, said extending support measures over the summer – a period that will hopefully “bear the first green shoots of recovery” – will enable firms to plan ahead.
House prices up 6.9% in February
Figures from Nationwide show that average UK house prices grew 6.9% year-on-year in February, up from the 6.4% growth recorded in January. The average price hit a record £231,068 last month, with this marking a 0.7% month-on-month increase following a 0.2% dip in January. Nationwide’s chief economist Robert Gardner said the increase seen in February was a surprise, with growth having been expected to soften as the end of the stamp duty holiday neared. He said the stamp duty holiday may still be providing “some forward momentum” and suggested further policy support in the Budget could further boost activity. Noting that the outlook for the housing market is “unusually uncertain”, Mr Gardner said that “if labour market conditions weaken as most analysts expect, it is likely that the housing market will slow in the months ahead”.
House Builders
Persimmon reported a 25% fall in annual profit and slashed its dividend, after construction markets were battered by the pandemic. Pre-tax profit for the year through December dropped to £783.8 million, down from £1.04 billion year-on-year.Revenue fell 8.8% to £3.33 billion after a 14% slide in home completions to 13,575 was partly offset by a 6.9% rise in the average home selling price to £230,534.
Taylor Wimpey noted a good recovery in the second half of a “very challenging” year. The FTSE 100 house-builder reported 2020 revenue of £2.8 billion, down sharply from £4.3 billion in 2019 due to the reduction in completions. This was broadly expected by analysts, with consensus standing at £2.7 billion. The company added that it will be resuming ordinary dividend payments by returning £151 million, as a final payout for 2020.
Freeports ‘no magic bullet’ for the economy
A report from think-tank UK in a Changing Europe says freeports are unlikely to offer a “magic bullet” for boosting the UK’s economy, suggesting that the main beneficiaries from the initiative will be the businesses and super-rich individuals who take advantage of the tax breaks they offer. The report says freeports are likely to relocate activity and jobs rather than creating them, with deputy director and report co-author Catherine Barnard saying suggestions that the initiative is going to transform the wealth and prosperity of the country are “simply untrue”. She adds that freeports will help the regions that get them “but possibly to the detriment of those that don’t.”
Hiscox
Hiscox swung to an annual loss, driven by the impact of event cancellation and business interruption claims owing to the Covid-19 pandemic. Gross premiums written maintained at $4.0 billion in challenging conditions.
Packaging
Packaging company DS Smith was trading in line with its expectations, with higher box volumes offset by a rise in input costs.’Trading continues to progress well, with the trends and momentum described in our first-half results on 10 December continuing into the second half,’ the company said.
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