£30bn tax grab: why Britain’s small businesses are paying the price

The Chancellor is popping the champagne over a surprise £30bn tax windfall, but out on the high street and in workshops across the country, small business owners are counting the cost. This isn’t a sudden burst of economic dynamism; it’s a tax haul swelled by frozen thresholds, higher charges and rising employment costs. When government celebrates extra money taken from those already under strain, it risks mistaking short-term gain for long-term growth — and squeezing the very businesses that keep people in work.

The Chancellor is very pleased that there’s £30bn more in the coffers, a lot more than forecast by analysts and much more than in January last year. That means less borrowing and lower interest charges. The tax take in January was more than expected. Because the income tax thresholds have been frozen more people are having to pay tax, or to pay higher rates of tax. More capital gains tax came in and more was collected in National Insurance Contributions.

More tax coming in is good news because there should be more money to pay for essential government projects and public services like the NHS. More money well spent could improve all our lives. That’s the whole idea of paying tax in the first place.

However, some people paying more into the pot are having their pips squeezed too hard. It’s possible to kill the goose that’s laying the golden egg.

Micro and small businesses are feeling their pips squeak. Many will assume that doesn’t matter; what’s the loss of the odd small business here and there; anyone in business can afford to pay, should pay and they simply moan for the sake of it. The reality couldn’t be more different.

Micro and small businesses account for 99.2% of the UK business population and between them contribute nearly £2 trillion to the UK economy. They employ half of the people working in the private sector. If you add in the 38,000 medium sized businesses those figures go up to £2.8tn and 60% of employment. Micro businesses are the real engine of job creation. We lose or reduce them at our peril, yet we’re squeezing them dry.

Wages have been increasing including minimum and living wages. That’s good because we need consumers to be able to spend but when you put wages up the employer’s national insurance contribution bill goes up automatically. The rate of National Insurance went up in April last year too. On top of that the costs of doing business: materials, energy bills, premises, business rates, insurance, training, expenses, compliance costs, interest rates, and more, have increased.

Many employers are responding by taking on fewer people, not replacing those leaving, using contractors and freelancers for short terms contracts rather than employing, or by not investing for growth until things get better. Some of these decisions are about the new employment rights coming down the track but for many, staying small, not exceeding the threshold beyond which you have to register for VAT, or Making Tax Digital, not embracing opportunities for fear of the costs of additional compliance or paperwork, is the prevailing thinking.

The Government wants growth, but it’s become too expensive for small businesses to grow. Micro and small businesses are the sectors that can deliver growth, but not when they can’t afford people, skills, business enhancing technology or investment. When small businesses are forced to pull their horns in, unemployment rises as it is doing, and the additional tax coming into the Government coffers peters out. If there are fewer businesses to pay in and more people without jobs forced to take out….what figures will we be writing about this time next year.

I leave you to do the maths.

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