What small businesses want from the government's 2024 Spring Budget

In anticipation of chancellor Jeremy Hunt's Spring Budget on 6 March, we have shared Enterprise Nation's small business recommendations with the Treasury.

The proposals focus on pressing issues for our 100,000+ members, including:

• Expanding small business access to new markets and customers.

• Providing more access to financing options like grants and low-interest loans.

• Assisting with recruiting and retaining talented employees.

• Encouraging technology adoption to boost productivity.

• Creating affordable working spaces and small business hubs.

By addressing these priorities, the government can significantly contribute to the growth and prosperity of small businesses in the UK. A thriving small business sector not only fuels economic growth but also fosters job creation and innovation, ultimately leading to more prosperous and resilient communities.

Enterprise Nation's full submission can be found here with a summary below:

Access to markets 

Deliver the government's ambition to spend 33% of its procurement budget with small firms

Our report Access all areas: Government made recommendations on how the government can reach its target for the amount of public sector contracts won by small businesses.

Among the recommendations, we urge the government to publish pipelines early, improve pre-procurement consortium building, connect SMEs to bid writers, and move away from social value.

Access to finance

Cut VAT to the COVID-19 pandemic levels of 12.5% for the hospitality industry

The UK has one of the highest rates of VAT for hospitality in Europe, which is a significant drag on our global competitiveness. The lower rate of 12.5% VAT for hospitality during the Covid-19 pandemic stimulated demand and generated much-needed revenue for the hospitality industry.

The return to the 20% VAT rate resulted in more than 5,000 hospitality businesses shutting down due to cashflow constraints in 2023. A high rate of turnover, low profits and high fixed costs are features of the hospitality industry, and the 20% VAT rate only adds to the detriment of businesses.

Build on progress to stamp out late payments by mandating 30-day terms to larger firms procuring from smaller ones

The government's new measures announced at the 2023 Autumn Statement marked a positive step in the right direction. Positive changes included the stringent payment time requirements for firms bidding on large government contracts. But, these measures only apply to firms bidding for government contracts over £5m, and small businesses will want to see the net widened to ensure the scourge of late payments are properly tackled.

In addition to the announced measures to tackle late payments, the government should consider recent measures from the European Commission to combat late payments in commercial transactions. This follows other measures from the Dutch government to mandate 30-day terms to larger firms procuring from smaller ones.

Access to people 

Reform the Apprenticeship Levy to enable businesses to transfer a higher portion of their Levy funds directly to small businesses

According to the Chartered Institute of Personnel and Development (CIPD), the number of apprentices starting in small businesses decreased since the introduction of the Apprenticeship Levy in 2017, with 123,800 apprenticeship starts in SMEs in England in 2020/21, compared to 241,000 in 2016/17, a fall of 49%.

One way to help reform the Apprenticeship Levy to deliver on its originally-intended policy aims, would be to enable businesses to transfer a higher portion of their Levy funds directly to the small businesses they partner with. Taking this course would give businesses significant flexibility and strategic control over their training investments. They would be able to prioritise partnerships with smaller players in their supply chains, targeting specific skills gaps or sparking innovation through collaboration.

Conduct a review on the feasibility of small business tax incentives to upskill their workforce

Small businesses are the backbone of the UK economy, and the backbone of each business is its people. But many small businesses can't find the skills they need in their local area, which impacts their local economy.

The government should consider offering tax breaks to small businesses to incentivise them to upskill their workforce. To do so, it should launch a review into the matter, which may consider interventions included Targeted training grants, Investment tax credits for collaborative programmes, or co-funded training schemes with matching grants.

Improve support for older people who want to get back into work or self-employment

Enterprise Nation's report, Access all areas: Older workers, found 67% of entrepreneurs over 50 say now is a good time to start a business. While the government offers support in various forms, the Learning and Work Institute found that the support currently engages only one in 10 out-of-work disabled people and 50- to 64-year-olds each year.

The government should promote its Access to Work initiative to help people with physical or mental health conditions to get or stay in work. The government should also make Work Adjustment Passports available to all participants, as well as modernising the system so that people can submit documentation online.

Access to technology

Offer targeted tax incentives, and time-limited subsidies, to support businesses with the cost of adopting technology

Enterprise Nation's research, Time is money: How adopting technology can make businesses more productive, found that the cost of software licences -- perceived or actual -- is preventing the smallest businesses from adopting new tools and becoming more productive.

We recommend an enhanced support of 140% on the first £50,000 of expenditure on productivity enhancing digital services, which equates to an additional 40% versus standard business expenditure. This will empower small and medium-sized businesses (SMEs) to embrace digitalisation and harness emerging technology, such as AI, to become more productive and grow sustainably.

Reward businesses for adopting technology with new financial support

Enterprise Nation's research, Time is money: How adopting technology can make businesses more productive, found that the UK offers some tax-based incentives for software expenses, and a credit for the cost of developing software in-house. The financial benefits of these measures are often limited, not tailored to individual businesses' needs, and are not provided within broader packages of support.

To overcome these challenges, the UK should look to leading tech powers like Singapore with its Go Digital programme and South Korea with its Digital New Deal. Go Digital offers a range of highly targeted, upfront financial and intellectual support tailored to sectors, from its 'Chief Technology Officer As a Service' offer to sector specific grants, linked to the objectives of the country's industrial strategy.

Access to space 

Scrap and replace the business rates system with a tax on the underlying land values, not productive investment

Enterprise Nation's report, Access all areas: Space, argued that the current business rates system is not fit for purpose. While cutting business rates can offer short-term relief, evidence suggests this is effectively a tax cut for landlords, as rents rise to offset any cuts. Therefore, a more efficient system would see the business rates system replaced with a tax on the underlying land values, not productive investment.

If the business rates system is retained, freeze them until the Bank of England's inflation target of 2% is met

Business rates can represent a significant financial burden for small businesses as these taxes are based on property valuations, which can be high, especially in prime locations. High business rates can minimise the profitability of small businesses.

Considering current high inflation levels and increasing consumer costs, increasing the business rate multiplier would significantly add to the already-high business tax burden, which may have to be passed on to consumers, hitting small business profit margins and hampering their growth.