13 June 2024 – As the self-titled party of business, the conservative manifesto 2024 is among the most anticipated news for many small businesses across the UK.
Many small businesses will be pleased to know, SMEs weren’t left out in the campaign.
SME development and growth
Small businesses are poised to take centre stage in public contracts. For that to materialise, an improvement in public sector procurement is promised
In addition, the PM pledged to increase the VAT registration threshold to £90,000, which will provide more support for 28,000 SMEs.
In a bid to further the growth of small and medium-sized businesses for the next Parliament, the Tory Manifesto introduced the following ten-point plan:
- Continue to ease the burden of business rates for high street, leisure and hospitality businesses
- Keep the VAT threshold under review
- Improve access to finance for SMEs through Open Finance and Regional Mutual Banks
- Take more companies out of the scope of burdensome reporting requirements
- Retain key tax incentives that encourage small businesses to grow, e.g. Enterprise Investment Scheme, Seed Enterprise Investment Scheme, etc.
- Promote digital invoicing and improve enforcement of the Prompt Payment Code
- Ensure that Basel III capital requirements do not inhibit lending to SMEs
- Continue the world leading programmes, such as the Invest in Women Task Force and the Lilac Review
- Work with the British Business Bank and private sector fund managers to secure a £250 million Invest In Women Fund
- Work with public sector organisations to ensure that procurement opportunities are focused on SMEs in their local economies where possible and practical
Admittedly, this plan is quite optimistic news for small businesses in the UK. However, with everything the Conservative Party is trying to achieve, SMEs can only hope everything on the list will come to fruition.
Tax cuts for the employed and self-employed
The Tories pride themselves on promoting a tax system that boosts businesses. For the next Parliament, the Party hopes to extend their support of small businesses through several tax cuts.
The next step of this plan is cutting employee National Insurance by two percentage points or 6% by April 2027.
This motion will also entirely abolish the main rate of National Insurance for four million self-employed individuals by the end of the next Parliament.
Continued apprenticeships to provide skills
In light of recent immigration regulations, there are worries of a worsening labour and skills crisis in the UK. As the lifeblood of the UK business population, SMEs have it the hardest.
As a solution, the government has turned to apprenticeships to encourage young local talent.
The Tories promise 100,000 more apprenticeships for the youth in England every year by the end of the next Parliament.
Funding for this initiative will come from the reorganisation and closure of underperforming university courses, i.e., those with high drop-out rates.
Another worthy initiative is the Lifelong Learning Entitlement program, which will support upskilling and training throughout a working adult’s career.
Through this, Skills Bootcamps will be expanded while individuals can apply for loans for additional qualifications to address skills gaps.
Idealistic or impractical? IFS opinion on the Conservative Manifesto 2024
As a response to the manifesto, the Institute for Fiscal Studies (IFS), the UK’s top independent economic research institute, released an initial breakdown.
One of the highlights of the manifesto is the tax cuts for the self-employed and the regularly employed. IFS Director Paul Johnson focused on the challenges these tax cuts may bring.
For example, the promised cuts to the main rate of National Insurance for employees may cost the government more than £10 billion a year. And the government announced more spending. But how all this is funded is rather vague.
The manifesto claims the money will come from reducing the welfare bill. How exactly this is done is not specified and it’s not certain if the amounts needed can be raised via this route.
The other issue the widening gap between the employed and self-employed these tax cuts create. A regular taxpayer would have a marginal tax rate of 20% while self-employed after the abolishing of NIC. As an employee, this rate rises to 35%.
This will make being self-employed much more attractive than being employed, which is great if you want to work for yourself, but not so great if you are in employment.
Overall, the IFS calls these tax cuts from the manifesto as politically driven. The institute believes that other pressing tax reforms, such as fuel duty revenue and council tax, need more attention.
Our verdict on the Tory manifesto
The headline measure of cutting and eventually abolishing NIC for the self-employed surely looks like the government is finally willing to support small business owners. So do other measures, such as the rising threshold for VAT registration and the support with late payments.
However, consecutive conservative governments have made running a small business more challenging and expensive over the years. The tax-free allowance for dividend for example has fallen from £5,000 in the year 2017/18 to £500 this tax year.
And the biggest falls happened under the current Prime Minister.
In 2022, corporation tax rose from 19% to 25%. Admittedly it’s not a straight rise. You still pay 19% on profits under £50,000, but then the tax will rise. And you only pay the full 25% if you are lucky enough to have a profit of over £250,000.
But still, this rise in corporation tax means that many small businesses now pay higher taxes.
The recent price hikes by Companies House also add to the cost burden of small businesses. Filing your Confirmation Statement, a legal requirement for Limited Companies, has jumped from £13 to £34.
Also, let’s not forget that while NIC might fall, income tax doesn’t. And the income tax brackets have been frozen in 2021, after Liz Truss’ ill-fated mini-budget almost crushed the economy.
These thresholds aren’t due to rise again until 2028. This in effect means taxes are going up for small business owners, if they want to increase their salary to keep up with inflation. The alternative of dividends isn’t as attractive anymore either, as we have seen.
While there are some positive measures in the Conservative Manifesto 2024, it certainly isn’t a clear plan to support small businesses, who are the lifeblood of our economy.
