What has the government ever done for us?

Mimicking the famous line about the Romans in 'Life of Brian', let's imagine we have a group of men and women who run their own small businesses and one of them asks this question about the current government. Just to clarify, when I say 'small' business, I mean 'small'. Let's say below £200,000 annual sales. I don't have the precise numbers to hand but I would imagine that this would cover the vast majority of businesses currently trading in the UK. Typically the owners are not fantastically wealthy. The more successful ones will have taken risks and made sacrifices to get their business to a stage when they can draw a reasonable income from it. 

Let's look at the positive things the Government has done for this sector. Corporation tax rates are relatively low and are set to fall further from the current level of 20% to 18% by 2020. They have introduced an employment allowance for employers which reduces their national insurance bill. In 2016/17 this will be an allowance of £3,000 per annum. (Note though that this only benefits businesses that have employees on the payroll above the NI threshold and it does not apply to single director businesses). The capital allowance thresholds are relatively high but in reality these only benefit larger businesses who invest at a higher level. That's about it. Oh, there's also small business rate relief although that only benefits businesses that own or rent their business premises. 

Now let's look at the negatives. The biggest debit has to be the introduction of the new dividend tax from April next year. This will add a significant personal tax burden to small business owners who run their own limited companies. The stark choice is that they  will need to make cuts to their own personal drawings or cut back in their businesses. It is also becoming increasingly apparent what a huge overhead the new mandatory employment pensions will be for the smallest businesses. For businesses struggling to keep up with HMRC compliance this is another unwelcome administrative burden being foisted on them, with minimal practical support. Then there is the new National Living Wage being introduced from April. Larger businesses have the capacity to cope with this. Our smallest retailers, hairdressers etc will find this a major challenge, especially with the other measures outlined above compounding their financial difficulties. They have also made it more expensive for these entrepreneurs to exit from their business. Changes to the rules on solvent liquidations mean that entrepreneurs' relief will no longer be available in these circumstances from April. Many business owners will now face a much higher capital gains tax liability on exit than they had planned for.

So let's go back to the original question put to a room full of small business people. What has the government ever done for them? Well, looking at the most recent changes, the answer would have to be, 'Not a great deal and they are making our lives a lot more difficult.'

The Government will point to the positive measures above and the difficult decisions they have had to take to stabilise the public finances. In my opinion, some of the burden is falling disproportionately on the smallest of small businesses. Some of these adverse measures will really start to bite this year and particularly in 2017/18 and I believe there will be a negative impact on business profits and investment in these businesses. By nature this group tend to be positive and resilient and not given to making a fuss. I believe the government should not take their goodwill for granted however and they are running the risk of alienating a cohort who should be their natural supporters.

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