What does the Chancellor’s Spring 2023 Budget mean for SMEs?

Budget 2023
The Chancellor, Jeremy Hunt, delivered his spring statement on Wednesday (15 March 2023). His speech centred around the four key words of employment, education, enterprise and everywhere, but what does the budget mean for SMEs and do the measures go far enough to drive economic growth?

Our managing director, Jane Galsworthy, has been providing her response to the budget in the national media, which includes a recent article in The Times Enterprise Network.

Here, Jane gives her views on some of the measures announced and the changing business support landscape.

Whilst there are some welcome initiatives, there is perhaps little of immediate help to SMEs struggling with energy costs and inflation. As previously planned, corporation tax is going up on 1st April 2023 from 19% to 25%. However, the Chancellor has softened this increase with a sliding scale for businesses. This means only around 10% of companies will pay the full 25% rate. This is one small win for SMEs.
Jane Galsworthy
Another positive was the announcement on full expensing, which will be introduced from 1 April 2023 until 31 March 2026. This means that every pound a company invests in IT equipment, plant or machinery can be deducted in full from taxable profits. It is a small win for SMEs, but without a long term commitment, it may just bring forward investment rather than encouraging new investment. Announcing this measure when the corporate tax rise was originally announced would have given businesses the ability to factor it into their long term plans.

Although it was good to hear that the tax relief on energy efficiency measures has been extended for two years, I would like to have seen more initiatives to encourage businesses to reduce their energy usage. If the UK and local areas are serious about meeting net zero targets, then there needs to be more incentives and support to stimulate SMEs to prioritise improving their environmental performance. This is a big challenge for manufacturing SMEs who are larger consumers of energy and resources than services businesses.

Our recent report on Supporting Green Manufacturing, which analysed data from over 2,000 SME manufacturers in England receiving support through our Manufacturing Growth Programme, found that most SMEs know they need to improve their environmental performance but are not prioritising investing in projects to address this issue. Fewer than 4% of projects taken forward by companies under the programme focused on environment and sustainability compared to 30% focused on marketing and 24% on productivity. Worryingly, the data analysed indicates that 35% of the SME manufacturers do not know how much energy they use and do not have actions in place to reduce this.

The announcement of Investment Zones in combined authority areas (is an interesting attempt to build strong local clusters through local tax incentives combined with specialist support. Funding will flow in March 2024 so combined authorities have a year to select specific locations and map out the incentives required to drive growth. Unfortunately, these zones are only available in areas in England that are, or have committed to becoming, a mayoral combined authority. So, is this an incentive to encourage more places to become a mayoral combined authority?

Investment Zones will require significant private sector investment alongside Government funding to build thriving Investment Zones.

The Chancellor also indicated that the government will consult on transferring responsibilities for local economic development, currently delivered by Local Enterprise Partnerships (LEPs), to Local Authorities from April 2024. This is good news for places in Combined Authorities, which have strong plans placing SMEs at the heart of their economic development strategies. It is a much bigger ask for the hundreds of smaller Local Authorities, which have a wide range of responsibilities to which business support has now been added.

The fear is that the role of SMEs in driving economic development may be lost at a time when it is most critical.

Recruitment is definitely a big issue for small businesses who are struggling to find the skills that they need so it was good to see a strong emphasis on getting people back into work, including additional free childcare, in the budget. Given skills shortages it would have been good to see more flexible incentives for SMEs to invest in upskilling their workforces. This measure has been well received, but I question whether it is enough to stimulate significant economic growth.

Unfortunately, these initiatives do not form part of a coherent strategy for enterprise and small businesses. In fact, with the recent changes to government departments, it is not clear where responsibility for businesses (and specifically business support) sits with the Department for Levelling Up, Communities and Housing responsible for business support funded via UK Shared Prosperity Funding (UK SPF), the new department for Business and Trade responsible for supporting SMEs with export advice and DSIT responsible for business-led innovation.

Overall, there were some wins for business, but not enough to help SMEs. From our experience of working with over 33,000 SMEs across the country, high energy costs, price rises, supply chain issues, access to finance and skills shortages remain the most pressing challenges they face.

We believe specialist business support programmes like the Manufacturing Growth Programme and Access to Finance, play a crucial role in supporting companies to overcome everyday challenges and barriers to growth. At Oxford Innovation Advice, we’ve seen first-hand how the right expertise can unlock the potential of some of our brightest SMEs. Impartial and high quality business support should be a key priority of local and national economic development plans as thriving businesses are an important element in creating thriving communities, job opportunities and economic prosperity.

Jeremy Hunt has stated that in the autumn budget statement he will return with plans to increase investment in high-growth firms. So, it will be interesting to see what this means in reality.

You can find more information on the Chancellor’s spring statement on the gov.uk website.

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Oxford Innovation Advice offers Insights into SME needs and policy effectiveness for policy makers, funders and business support commissioners. It draws on our 30 years’ experience of delivering positive economic growth by enabling scale-ups to achieve their full potential. Each edition concludes with an ‘Implications for funders and Policy makers’ section.

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