Save content
Have you found this content useful? Use the button above to save it to your profile.

What Price The Economic Future of UK plc?

18th Jul 2020
Save content
Have you found this content useful? Use the button above to save it to your profile.

I wonder if the Covid-19 Pandemic and resulting fiscal criticality caused, thereby, will change Government’s perspective and attitude towards the crucial contribution made by the SME business community towards economic stability, growth and trade?

Having spent much time, years back, lobbying Government ministers and departments such as the now defunct DTI, etc, on behalf of the profession and my then institute, I for one am not holding my breath!

Clearly, Government suffers an ingrained and patronising attitude towards SMEs! When considering business, their mental focus automatically goes towards the City, the sacred “Markets” and the major Multi National Corporations. In terms of management psychology, they are “Functionally Fixed”; or, as I realised years back, suffer from what I term Multinational Myopia.©

However, let us examine what, economically, the SME Community actually provides. This blog post is written in empathy with the majority of Accounting Web members and commentators, since it would seem, a majority are engaged in SMP activity; (Small And Medium Sized Practices), which depend upon a thriving SME client-base for their own survival.

Table A: Estimated number of businesses in the UK private sector and their associated employment and turnover, by size of business, start of 2019

Business Employment (thousands) Turnover (millions)
All businesses 5,867,770 27,498 4,149,973
SMEs (0-249 employees) 5,860,085 16,630 2,168,005
Small businesses (0-49 employees) 5,824,500 13,157 1,528,684
With no employees 4,457,820 4,835 304,508
All employers 1,409,950 22,663 3,845,465
of which:
1-9 employees 1,155,385 4,206 595,013
10-49 employees 211,295 4,116 629,163
50-249 employees 35,585 3,473 639,321
250 or more employees 7,685 10,868 1,981,968

Source: https://www.gov.uk/Government/publications/business-population-estimates...

Thus we can easily conclude, the SME community is pretty important to Britain’s economic prosperity! Shame Government has never realised and acknowledged this...

Indeed, over the years, the small self-employed person or close company director has been punished, by Government, for daring to try and make an honest living!

Class IV NIC: An iniquitous tax on working introduced by Thatcher. Remember, “We are the party of low taxation!”; right. At least she eventually allowed, on a re-think, to allow 50% of the cost to be expensed as a legitimate cost. Not so NuLiebor! It evaporated. What is ALWAYS forgotten, or comprehended by idiot politicians, are the costs involved by the serious hardworking self-employed are Private Pension contributions, insurance against not being able to work, through accident or illness, probably Private Medical Cover, since they cannot afford to wait around until the NHS deigns to treat them; and so on.

Finance: Most SMEs are heavily geared: they have to borrow to fund their sold ledger, business expansion, plant and equipment, etc.

As the debacle over the CBILS loans; which didn’t sort of happen; despite the venal banks being at risk for ONLY10% of the capital sums.

MTD: The complexity and sheer cost of this insane nonsense impacts upon the bottom line of all sectors of SMEs. In the current business turmoil, it seems to have been placed in abeyance, although for how long, is anyone’s guess.

VAT: I am sadly sufficiently old to remember Edward Heath announcing the imposition of Value Added Tax with the doomed words, “One simple tax; one low rate!” Don’t we all wish. VAT was introduced as a replacement for Purchase Tax; which was indeed, clunky. However, I can assure you, not too complicated, for any reasonable well versed accountant.

But hang on! Purchase Tax was introduced, post World War II, to try and reduce consumption of luxury goods: such as furs, jewellery, watches, etc. Furthermore, it applied ONLY to brand new items, not second-hand goods. Critically it never ever applied to services and items essential for everyday living and survival!

For me, the imposition of VAT upon such as Domestic Energy etc, was utterly scandalous! Even worse, was people’s labour. This was the first time such a heavy tax was imposed upon one’s work. A short-lived tax, Selective Employment Tax, was tried as a –clumsy – method of discriminating against non-essentials, but soon dumped. The core reason Heath introduced VAT was simply because it was a requirement for trying to join the E.E.C. (The European Economic Community), the precursor to the EU. A little remembered fact is that a percentage of ALL UK VAT collected, is remitted direct to the EU. Thus of course, once we leave, then it can be unwound: in a dream World no doubt!

Balancing Allowances: Now this was a truly inept move, brought in by a supposed business-friendly Tory Government.

Small businesses having to purchase motor cars, are hit the worst of all. Not only is a Motor Car’s new value still capped at £12,000, under Capital Allowances rules, the value to be claimed is additionally hit by carbon emission rates. Then, when the asset is sold, any remaining balance is transferred to the main pool to be slowly written off over a considerable period of time. This move has particularly impacted self-drive hire firms and those other activities where self-drive hire provision is a core aspect of their services.

And, above all this, the SME proprietor must pay the cost of endless extra paperwork, record keeping compliance and accounting to Government to do their work for them!

We have learned:

A. Circa 650,000 will lose their jobs! Personally, I believe it will be far higher. Ergo, with a shrinking revenue take, social costs will rapidly rise. A negative double whammy.

B. The UK GDP could plummet by in excess of 35% at a conservative estimate... obviously, the reality will be far higher.

C. Britain now heads towards its state debt reaching the equivalent of MORE than its GDP! Public debt now stands at over £1.84 Trillion: and rising...

D. Debt Service will probably exceed £50-55 Billion in Fiscal 2020/21.

Yet nice Mr Sunak is still throwing ever-greater wodges of billions into the pot!

THE FORGOTTEN DOMINO EFFECT:

SMEs mainly tend to have other SME’s as customers, as well as end consumers. Core problem is customer base has dwindled and will continue to evaporate. If the customers are consumers, well a majority are already feeling the financial pinch and are unlikely to splurge overmuch until their income expectancy improves: with mass unemployment looming, then the outlook for SMEs becomes even worse.

Using an average of credible economic sources, it seems:

SMEs contribute circa 48-50% of Private Sector GDP:

SMEs create circa 47-49% of Private Sector employment:

GDP: now I do not like this economic metric: it is flawed. Mainly, since it incorporates Government costs as a central part of its composition. As Government spending has zoomed over the past forty years, ergo, simply recycling taxation revenue into a part of the annual good, warps the reflective analytical value and credibility; as it skews the outcomes.

One could cynically extrapolate this and suggest Government became the major UK employer, giving everyone a job, on paper, and paying them, accordingly!

In conclusion, we can only hope at long last, Government wake up to the realities and treat Small Business with much greater empathy instead of treating them as a simple Cash cow to be unfairly milked at every political opportunity.

Michael C Feltham

Tags:

Replies (1)

Please login or register to join the discussion.

avatar
By Michael C Feltham
20th Jul 2020 12:09

How fascinating!

Clearly, no practitioners feel their client-base will be unable to discharge fees in the near future...

Quaint.

Thanks (0)