Following last week’s UK Budget which included £40bn of tax rises, Joanna Jenson, entrepreneur and chair of the Enterprise Investment Scheme Association (EISA) talks through what the measures mean for the UK’s entrepreneurs
Since the double whammy of COVID and Brexit, startups and scale ups have been experiencing belt tightening; liquidity is scarce, the cost of goods has risen enormously and international export legislation is nothing short of a headache.
Many small firms are facing chronic staffing issues, from the long-term sick, a severe lack of workers in the hospitality and services industries, and many now reluctant to return to the office. A new government talking about growth was a much-needed boost – until the whispers started circling about their intention to remove every lever in the toolbox used to support business growth. The constant finger pointing at the previous Government feels like an intentional distraction from the fact that they are a collective of business virgins.
Even before last week’s Budget, the rumours stagnated consumer purchasing and put fear into pretty much every SME I know. Looking at the FTSE performance, the city was undoubtedly predicting a damaging speech.
Whilst the sentiment didn’t start badly, with Starmer stating ‘our number one mission is growth’, and Reeves saying the ‘only way to drive economic growth is to invest, invest, invest’, it made me think – for a brief moment – that the Government had heard the groundswell of fury. Or, for the more cynical amongst us, leaked rumours of pending despair to make the blows less painful. I think we would all hope that the Custodians of UK Plc would not stoop so low.
On the positive side, the Budget includes the maintenance of the R&D Tax Credits system, more investment in the National Wealth Fund, investment in innovation acceleration an lower tax rates for retail, hospitality, and leisure.
Employers’ National Insurance rise
But with both the employers National Insurance increasing from 1.2% to 1.5%, and the reduction of the secondary threshold from £9,100 to £5,000 from April 2025, alongside the new Day-One employment legislation pending, we will see many UK businesses move employment hubs to more favourable territories, thus removing Treasury revenue. Why endure the potholes, the weather and the tax if you can do this all from Portugal, Spain or Italy
The continual rhetoric about not impacting the ‘working people’ – what, anyone with a job? – was without foundation. The increases in NI and minimum wage will of course hit them through rising costs. Looking at a brand I know; they have a turnover of just over £10m, and their costs will rise by £300,000. In real terms that means they will need to increase sales by just under £1m to pay for these increases. That’s a huge ask.
Whilst Reeves claims that the new employment legislation has been designed to prevent ‘Unfair dismissal, bullying in the workplace, [and to provide] access to paternity and maternity leave’, there is some irony that in this same Budget we heard the appointment of a COVID Corruption Commissioner and crack down on benefit fraud. And let’s not forget the nearly 1m Brits who are currently on long term sick leave. Clearly not all of our countrymen behave with integrity and honesty, but we are led to believe that will do in the workplace once the Day-One policy becomes law. Hmmm.
As to Capital Gains Tax and Business Asset Disposal Relief, formerly known as Entrepreneurs Relief Tax (ERT). The increases in CGT (from 10% to 18% for the lower rate and from 20% to 24% for the higher rate), could have been a lot worse, but one does have to question: is the £2bn this increase will raise by 2030 worth the upset it has caused the SME and entrepreneur communities over the last few weeks, and will for years to come?
Unwelcome changes to Business Asset Disposal Relief
The changes to Business Asset Disposal Relief are very unwelcome and dare I say foolish; this is not the £10m at 10% it once was, and increasing this tax to ultimately come in line with the new lower-level CGT by 2026 makes a nonsense of it. A reinstatement of the original £10m ERT with an increase to 15% would have gone a long way to soothe our exceptional founders’ very furrowed brows. An opportunity squandered
Reeves referred directly to the maintenance of Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS) legislation, and it is here I would like to see the Board of Trade looking to show the entrepreneurial community their commitment to this lever of growth through the revision of the EIS.
Thirty years on from its creation, changes in the investment terms are long overdue and will encourage domestic investment in UK business. UK High Net Worths have invested over £32bn in 56,000 companies during the tenure of the Seed Enterprise Investment Scheme and EIS, and have allowed our SME’s to flourish.
Time to raise the level of investment in EIS approved enterprise
The Government should now review the rules; raising the level of investment in an EIS approved enterprise from £12m (£20m for knowledge intensive businesses) over the lifetime of a business to say £50m and £100m respectively, and making businesses eligible for EIS within the first 15 years of their first commercial sale.
The increase of investment levels reflects inflation over the years and extending the lifetime length will support female led businesses, who often start a business whilst their families are young and only need investment once the investment deadline has passed. Ms Reeves’ message today to girls and women was they should have ‘No ceiling on your ambition, your hopes, your dreams.’ So, let’s remove this ceiling.
Joanna Jensen is chair of the Enterprise Investment Scheme Association (EISA), and is founder of Childs Farm, the UK’s no.1 baby & child skincare brand. She is an Angel Investor in 12 female founded brands, products and services.
