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Founders Of E2Exchange And Boom & Partners Share Their Thoughts On The Forthcoming Budget.

Shalini Khemka CBE

Founder and CEO of E2Exchange Shalini Khemka CBE and Founder and CEO of Boom & Partners Kevin R. Smith Share their Thoughts Ahead of the Autumn Statement.

Kevin Smith, CEO Boom and Partners and E2E Ambassador, shares his thoughts:

Kevin SmithJeremy Hunt’s autumn statement on 22nd November 2023 will be more important this year than most years.  Whilst speculation swirls around about potentially vote winning inheritance tax cuts, or even cuts to NI, these are not what the reportedly £25 billion of “headroom” would best be spent on.

If the Chancellor and the government are serious about stimulating the economy and fostering growth, rather than being purely focused on spending money on inflationary tax cuts for individuals, then the funds would be far better used to stimulate business and investment. 

A combination of major one-off shocks to businesses has now lead to a huge growth in corporate failures and this is only set to accelerate in 2024.  These one-off shocks include the added costs and complications of Brexit, as well as the very difficult trading conditions brought about by pandemic lockdowns, and the fuel and commodity cost shocks caused by war in Ukraine and elsewhere.

Every economy around the world is dependent upon the SME sector.  According to government statistics, there are some 5.55 million micro and SME businesses in the UK and between them they employ 16.7 million people, representing 61 per cent of the total workforce.  Due to the very challenging trading environment, there are fewer SMEs in 2023 than there were in 2020.  The autumn statement should focus on how best to provide assistance to SMEs and entrepreneurs.

Business Asset Disposal Relief would be one way. This relief was first introduced at £1m in 2008 (then called Entrepreneurs’ Relief) and rapidly increased in stages to £10m in 2011.  However, this was cut back to only £1m in 2020.  This drastic cut runs the very real risk of deterring new entrepreneurs and is perhaps one of the reasons that there are fewer MSMEs in 2023 than in 2020 when the cut was made.  Restoring this to £10m, or even to £5m, would stimulate entrepreneurs and smaller businesses whilst not being inflationary.

Business Rates would be another way.  This property tax penalises businesses with retail outlets especially hard.   The Valuation Office Agency has recently completed its 2023 revaluation of non-domestic properties, which has not been updated since 2017.  Over the years the level of business rates payable has increased substantially but the next increases will be the death knell to many small businesses.  The ‘small business multiplier’ will place an inflation-linked increase on ordinary businesses but the most under pressure high street firms could be facing a quadrupling of their bills when the 75 per cent retail, hospitality and leisure discount expires in March 2024.  Not only would freezing or, more effective still, reducing business rates prevent many businesses from failing, it would also be totally non-inflationary at a time that the government is attempting to reign in the recent rampant inflation.

Female founders and ethnic minority groups deserve more support.  The autumn statement should also bring in incentives and legislation to ensure that more funding and support is provided to female founders and those from ethnic minorities.  A record number of female founded businesses were established in the UK in 2022 – over 150,000 which is twice as many as in 2018, with the number growing year on year.  Female founded businesses now represent a fifth of all UK SMEs.  Despite this, the Rose Review reported that 50 per cent of female business leaders and entrepreneurs reported that it was difficult to access funding, compared with 40 per cent of male equivalents.  More significantly, just 2 per cent of VC funding went into all female founded businesses and only 17 per cent into businesses with any female founders.  Worse still, only 0.1% of VC funding went into ethnic minority female founded business.  This is a significant missed opportunity for the economy and should be urgently addressed.

A perfect example of the benefits that well targeted government support can bring to supporting the SME sector are the recent improvements to the SEIS scheme.  By giving tax incentives to private investors to back entrepreneurs, provides significant amounts of capital to early-stage businesses.  HMRC reports that two thirds of angel investors will only invest into businesses with SEIS or EIS.  The recent improvements have enabled many companies to raise more money, more easily.

E2E has 24,000 members and has campaigned successfully in the past for government policy to be changed.  The best use of public funds in this autumn statement would be to provide much needed relief to the SME sector by way of increasing Business Asset Disposal Relief and the amount of support to female founders and ethnic minority entrepreneurs, whilst at the same time reducing the crippling levels of business rates, especially to those sectors most in need.  These actions would be non-inflationary and would support the growth of the whole UK economy.

Shalini Khemka CBE, Founder & CEO of E2E, shares her perspective: 

This year’s budget is crucial. After a year of uncertainty and a lack of direction,SMEs and start-ups will be looking for more targeted support. Just in the first quarter of 2023, more than 105,000 UK businesses closed. The economy has suffered from a weak growth trajectory and with a recession predicted, it is imperative the government recognise the strain business owners are feeling and act upon it.

I am especially concerned for underrepresented founders, including women, who urgently need more support. Cutting red tape and tackling tax avoidance may be high on the government’s agenda, but reforms should take into account that female founders are only getting 2% of funding despite growing in their numbers. As Kevin highlighted, there is a huge gap that must be filled so women and founders from an ethnic minority don’t continue to fall behind. At E2E we are passionate about championing underrepresented founders and have made significant progress, however we can’t do it alone and the government needs to take action.

If we want SMEs to thrive, and importantly survive, we need to see a range of schemes which are tailored to each type of business. We have heard the government won’t be committing to tax cuts for businesses. However, like Kevin said, giving tax incentives to private investors would drive up capital that is desperately needed for early-stage companies. Furthermore, the skills shortage must be addressed and tackled. Implementing targeted skills funding is vital for the younger generations, particularly in the tech space where innovation is happening all the time. This can involve implementing research and development incentives so companies can recruit new talent more comprehensively and scale successfully.  A commitment to promoting tech adoption more widely would be well-received as many businesses are struggling with low productivity and the barriers that currently exist that prevent people from getting into work. Moreover, the government must revise its immigration plans and encourage skilled workers to come so we can grow the economy.

I am in agreement with Kevin that business rate reliefs would also be welcomed as, combined with high energy bills and high inflation, many industries are feeling the pressure and can’t supplement the extra costs on their own anymore. Further, the FSB in urging the Chancellor to extend the 75% business rates relief discount for retail, hospitality, and leisure firms as it is due to be cut in April next year. Entrepreneurs are also calling for the scrapping the sunset clause for Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) and removing the need for Advanced Assurance for Seed Enterprise Investment Schemes (SEIS) which will help entrepreneurs scale and innovate. 

Small businesses are at their limit, and it is not their fault. The government should integrate them into their economic growth strategy, realise their potential and how they can be a tool to generate positive, lasting growth that will revitalise our towns and make money flow all over the UK and not just in the capital. The government has already retreated from its levelling up promises, but businesses cannot afford to be forgotten. Giving local government more powers to support small businesses could be one way to increase transparency as many entrepreneurs struggle to access information that is meant to be available to them. For example, regulation compliance or taxation for international trade. There is a lot for entrepreneurs to know so streamlining services should be a priority.

To end, there is plenty for the government to change and I hope businesses will be heard and reform will begin to take shape in the new year. Small businesses have had to face an unprecedented number of challenges as well as the workforce, so a cohesive approach is greatly needed to get people earning, learning and engaged in the economy again. 

 

About E2E

E2E is an exciting and ground-breaking powerhouse of entrepreneurs, investors, non-execs, and SME-focused corporate organisations. Its mission is to develop the largest and most active entrepreneurial ecosystem in the UK to enable extraordinary entrepreneurship. E2E’s current community consists of 24K SMEs who contribute £230bn in turnover to the UK economy and employ 1.15 million people. E2E champions entrepreneurship through access to human capital, corporate services, and investment Capital and creates peer-to-peer communities.

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