It is clear that the Chancellor has listened to the cries of business and households, but why have similar calls from entrepreneurs, who represent the backbone of the UK economy, fallen on deaf ears?
Employing the majority of people and accounting for over half of the turnover of the UK economy, small and medium-sized enterprises (SMEs) are the engine room of the country and just under 100% are privately owned. Behind all SMEs there is an entrepreneur – those who take significant financial risk to get a business of the ground and help it to grow, often at significant personal cost.
The Chancellor’s Budget has been silent on supporting this community to invest further and help turbo-charge the economic recovery.
Entrepreneurs, like the businesses they support, need long term confidence and incentives to take the risk of investing, especially at a critically low period in the economic cycle when the risk of failure is much greater. Furthermore, given the high levels of bank deposits accumulated by individuals during the pandemic, this was the perfect opportunity for the Chancellor to incentivise entrepreneurs and unleash capital to help fuel the economy. This was an opportunity missed.
The Chancellor should have enhanced the personal tax reliefs associated with investing in UK businesses under the Enterprise Investment Scheme or Venture Capital Trust regime. Currently, these schemes offer a 30% Income Tax credit, and this should have been increased for investments made over the next 12 months. Furthermore, the tax reliefs should have been extended for investment through loans (and not just shares) to facilitate more immediate cash to UK businesses from private lenders and the extent of qualifying companies should have been broadened.
While the extension of the key support measures coupled with the introduction of new initiatives provides a great short-term stimulus there is a real risk that the pandemic leaves a long-lasting effect on business and households which requires continued Government intervention.
The private sector, and entrepreneurs in particular, are a key part of the overall long-term solution to re-energise the economy and allow the Government to limit its continued involvement. Such businesses and its owners make a significant contribution to tax receipts collected by the Government and are increasingly at the forefront of innovation, another cornerstone of the long-term prosperity of the country.
The Chancellor should also have reinstated Entrepreneurs’ Relief lifetime limit to £10 million. He must fairly reward those who make such a contribution. He has taken a ‘support now, tax later’ approach, without providing any incentives for business owners. Also, leaving the uncertainty of not knowing how they will be taxed in the future, creates a perfect recipe for this community to limit their investment. This cannot be good for the economy.