The Budget presents tough choices for the Chancellor, but SMEs shouldn’t have to continue shouldering the burden, writes John Phillipou
The long-awaited Autumn Budget is just around the corner and there is a feeling of apprehension among SMEs.
As managing director of Paragon Bank’s SME lending division, I see the resilience and ingenuity of these businesses every day. Yet, it’s clear from both our own research and conversations with customers that the cumulative impact of recent fiscal measures is taking its toll on margins – and the balance between empowering big business and supporting smaller players needs to be redressed.
After a challenging first year in power, the Budget is a defining opportunity for the government to show it understands the value, contribution and potential of the UK’s small and mid-size businesses. Having spent years of my career working in markets across Europe, I say with conviction that the UK really does have an SME sector to be proud of. We are a nation of entrepreneurs, an incubator for ideas and, more often than we realise, set an example for the rest of the world.
Paragon’s SME lending team works with over 16,000 SMEs, and every day I see the resourcefulness and dogged determination that defines British business. Whether it’s a manufacturer in the Midlands automating to stay competitive or a Yorkshire construction firm investing in greener technology, UK SMEs have a unique ability to get things done, and this solutions-driven mindset sets us apart from other markets. We’re not a talking shop; we face challenges and tackle them head-on.
But, in my view, this spirit is being tested. The regulatory and financial burden placed on SMEs increasingly acts as a barrier to growth and innovation, and the impact of recent policy decisions is stark. Our latest survey of 1,000 SME leaders UK-wide found that 73 per cent were impacted by the Employer NICs increase, 69 per cent by the corporation tax rise and 64 per cent by the national minimum wage hike. These numbers represent real pressures on businesses that are already operating on tight margins.
Nearly half of SMEs told us that rising operational costs are their biggest challenge, with employment costs and access to finance close behind. When it comes to external pressures, two-thirds cite global economic uncertainty as a major challenge, with supply chain disruption, late payments, international trade tariffs and post-Brexit administration all weighing heavily on business operations.
What SMEs want from the Budget
Despite these mounting pressures, SMEs are not standing still. Over a third of those surveyed told us they have increased prices, while one in five have implemented hiring freezes. In encouraging evidence of their adaptability however, 30 per cent said they are investing in new technologies or automation, with more than a quarter exploring new markets or customer segments and a further 24 per cent investing in staff training to strengthen capability. Others under pressure, however, are acting more defensively by scaling back planned investments (28 per cent), or, in some cases, making redundancies (16 per cent).
In news that will not surprise many, less than half (47 per cent) of SMEs feel optimistic about the UK economy over the next 12 months.
When asked on policy areas they want the government to prioritise in the Autumn Budget, action on employment costs and tax was top of the agenda for 42 per cent of SMEs. Business tax reform, business rates, innovation and investment incentives, skills and training, and access to finance are also key concerns.
SMEs are the engine of the UK economy, employing 60 per cent of the private sector workforce and generating over half of all business turnover. When they succeed, the nation prospers, and when they struggle, the effects ripple outwards, impacting jobs, communities and national growth.
That’s why the Autumn Budget is so critical. It’s an opportunity for the government to level the playing field. I am not a politician and would not presume to tell the Chancellor how to do her job. However, while I recognise these are challenging times and difficult decisions must be made, it is vital that SMEs are properly recognised in fiscal policy. Whether support comes through extending business rates relief, increasing the employment allowance to reflect the new national living wage or expanding government-backed finance schemes, what matters most is that SMEs have clarity and are not left shouldering a disproportionate share of the burden.
Specialist lenders like Paragon are committed to working with SMEs to get things done. As a nation, we’re exceptionally good at coming up with solutions, and we should be proud of that. But we need a policy environment that enables, not inhibits, ingenuity. If SMEs are given the tools to succeed, the whole country stands to benefit.
John Phillipou is managing director of Paragon Bank SME lending and chair of the Finance and Leasing Assocation