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New chancellor Kwasi Kwarteng revealed his ‘mini-budget’ last week, with a host of measures to tackle rising inflation and cost-of-living.
These included a reversal of the 1.25% National Insurance rise, effective from the 6th of November, new investment zones with business tax relief, and a basic rate cut to 19p for Income Tax in April 2023.
Good news for businesses
The proposed cuts will certainly provide relief for businesses still struggling to recover from the Covid-19 pandemic and growing cost-of-living crisis.
Andrew Goodacre, CEO of the British Independent Retail Association, believes the measures would be much welcomed by businesses. “Reversing or cancelling increases in National Insurance and Corporation Tax will reduce the cost burden faced by independent retailers. Along with the energy support announced this week, we now hope that retailers can plan and fully focus on this all-important final quarter of the year (traditionally the busiest time of the year for many retailers).
“We also hope that the measures introduced to support households will restore consumer confidence and encourage shoppers back to the high streets. Consumer spending needs to increase or many independent retailers and high streets, in general, will continue to struggle,” he added.
According to Helen Dickinson OBE, chief executive of the British Retail Consortium (BRC), “The Chancellor’s announcements should help to shore up consumer demand going into what will be a challenging winter for households and businesses alike.
“The Energy Bill Relief Scheme, set out earlier this week, and announcements on National Insurance and Corporation Tax will help retailers shield their customers from some of the effects of inflation. Furthermore, we welcome the reintroduction of tax-free shopping for tourists, which will boost sales and bring the UK back in line with other European nations.”
The problem of business rates
While the mini-budget did provide some relief for businesses, industry bodies noticed one issue that was missing from the agenda: business rates.
Helen explained, “Retailers are facing immense cost pressures, not just from energy bills, but also a weak pound, rising commodity prices, high transport costs, a tight labour market and the cumulative burden of government-imposed costs.
“Yet what was missing from today’s announcement, was any mention of business rates, which are set to jump by 10% next April, inflicting another £800m in unaffordable tax rises on already squeezed retailers. It is inevitable that such additional taxes will ultimately be passed through to families in the form of higher prices.
“There is still time for the government to act. Freezing the business rates multiplier will stimulate investment and will allow retailers to focus on what’s important - keeping prices down for households.”
Philip Linardos, co-founder of digital wholesaler ShelfNow, added, “We would welcome an immediate overhaul of business rates to support our struggling high street partners and we would urge the government to reconsider this over the coming weeks and months.
“It is also disappointing to see no pledge made to reform fuel duty as this would benefit both our food and beverage producer and buyer partners by reducing product fulfilment costs and ultimately reducing costs for consumers too.”
Does it help small indie businesses?
The Federation of Small Businesses recently revealed that 15% of companies fear they will have to downsize or close in the next 12 months, so will the chancellor’s proposed help relieve the financial burden?
Mark Kacary, managing director at Norfolk Deli, isn’t convinced. “I’m unsure as to whether any of the measures are designed to help small businesses. I am even less unsure whether this will prevent businesses from closing. The percentage of people who will benefit most from the tax cuts is relatively low, and the benefit they will see in their pockets is unlikely to trickle down sufficiently to make the difference the government is hoping for.
“If we were located in an inner-city location close to a financial district, I would wager that the trickle-down effect the government is aiming for would benefit us, but of course, we are in a small North Norfolk town on the coast surrounded by pensioners.
“I also think that at the moment it looks as if interest rates are going to go up, mortgages will go up and all the reports surrounding these decisions are probably scaring rather than emboldening customers to spend.”
In fact, many small businesses have already been forced to close their doors. Independent wholefood grocery shop, Rice Up Wholefood in Southampton, has sadly shut down after nine years in business after their energy bills trebled.
Dorothy Martin, director at Rice Up Wholefood, commented, “People have so little money – so even if they want to shop with us, supermarkets are offering it cheaper, and I don’t blame them. But the energy costs were the most horrendous part of all.”
Per Nevrin is shutting down his business, Teston Bakery, in Kent. He told Speciality Food, “I have been trying to fight closure for as long as possible but with the rising costs on all fronts, energy in particular, I have no other option but to shut up shop at the end of this month. I’ve put all my savings and 14-16hrs days into this business.
“With a pandemic, Brexit, the war in Ukraine, inflation on goods and fuel I buy spiralling out of control and dwindling demand due to everyone else being in the same boat, I’ve decided to throw in the towel. I want to thank all my loyal customers for their support since I opened in February 2016.”