What does the coalition mean for SMEs?

Anita Brook is founder of Accounts Assist a growing firm of Chartered Accountants. She’s been advising small business, sole traders and consultants for 12 years

Like it or not we’re stuck with the conjoined forces of the Conservatives and Liberal Democrats for the next five years. A shock to many, seemingly irreversibly opposed parties are now holding hands, ready to (hopefully) dig Britain out of economic crisis.

Both sides have had to compromise on some policies and many don’t believe that this can ever work, but you never know, it might just be a new dawn of optimism.

So, what does this coalition government mean for the economy and small businesses in particular? If the country’s going to prosper, UK SMEs need to be given the environment and tools to increase profitability.

In the stocks

The barometer of our economy, the stock market, is at least relieved that a decision’s been made regarding the coalition, with markets now improving following the unstable post-election uncertainty. But, with a budget deficit forecast at 11.1 percent of output this year, the financial traders will be watching keenly to see how this is tackled.

Deficit dilemmas

Prior to the election, David Cameron pledged an emergency budget within 50 days. This will be key to credibility with both investors and credit rating agencies, which have threatened to strip the UK of its AAA rating if public debt is not reduced. A reduction in our rating may affect trading around the globe.

The Lib Dems have gone with the Conservatives plans to make £6 bn in cuts immediately – something they were originally opposed to. While cuts are inevitable to pay back the debt, where or how they’ll be made is still unclear.

Taxing times

Tax is an area where both parties have compromised. The Conservatives moved towards the Lib Dem proposal to raise personal tax allowance to £10,000 as a long-tem goal. This will mean money in the pocket of Britain’s lower earners, although how long this will take to be implemented has not been decided. The Conservatives have also abandoned their commitment to raising the death tax threshold to £1 million.

Neither party believes in raising National Insurance, so Labour’s plans to do so have been partially reversed. In other good tax news, a substantial increase in the personal income tax allowance will come into place from April next year, benefiting the lower and middle-classes. To fund these tax bonuses, the threshold for National Insurance will be dropped and capital gains tax for non-business assets will be raised, bringing it more in-line with income tax.

While they don’t have to vote for it, the Lib Dems have not opposed the Conservative’s planned marriage tax allowance, so if you’re living ‘in sin’ it might be worth taking a trip up the aisle.

Beating the banks

Both parties have agreed to introduce a banking levy, to tackle bonuses and create a more competitive industry. An independent commission, to investigate whether separate retail banking from investment banking, is being set up. This could spell bad news for the big boys, such as HSBC, Barclays and Lloyds TSB.

Good news for SMEs, both parties are committed to get credit flowing from the banks to businesses. Conservative proposals for a loan guarantee scheme and the Lib Dems net lending targets for national banks will both be explored, a decision has not yet been made.

No to the Euro

With Greece anything to go by, most are probably breathing a sigh of relief that the new Government will not be joining the Euro. This is one of the areas where the two parties differ greatly. The Conservatives are strongly opposed, where as Nick Clegg is pro-European and while he concedes that the time is not right now, at some point he wants Britain to adopt the new currency.

Transport trials

Good for the environment, but maybe not so good for business, plans to build additional runways at Heathrow, Gatwick and Stansted have all been scrapped.

Air passenger duty, will be replaced by per flight duty. This means for passengers on packed planes en route to popular holiday destinations, duty will be less. The downside comes for domestic flights – often used by the business community, as at typically 60% capacity, according to BBC breakfast, cost will be considerably higher.

Plans to establish high-speed rail links throughout the country will make travelling for work a much quicker prospect and may encourage (depending on the price) people to ditch their cars.

It’s early days yet, but proposed tax reforms and improved credit for SMEs seem promising at least.

As the dust settles and the smiles fade, can Cameron and Clegg really be friends?

>> For a full text version of the coalition document, visit the BBCs http://news.bbc.co.uk/1/hi/uk_politics/election_2010/8677933.stm.

Posted by Anita Brook on Friday, May 14th, 2010 at 11:31 am.

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