So Alastair has spoken

Tuesday 25 Nov 08 - So Alastair has spoken. I am not going to go into the economic or political significance of his “mini budget” beyond noting that he appears to have taken a sizeable gamble, which if it fails could lead to considerable difficulties for the UK economy in the future. However there are a number of measures which will directly impact on our clients, both present and future, some of which are discussed below.

Firstly credit where credit is due. There are many things that will benefit small and medium sized business, as long as they actually do what they say on the tin. These include the small business finance scheme, the loan guarantee facility for small businesses who export, the possibility of negotiating flexible payment of tax liabilities in cases of hardship, empty property relief and the ability to carry back some business losses for up to three years. The delay in the increase in the rate of small business corporation tax and the deferring of proposals to tackle so called income shifting are also very welcome. We at Orchard will certainly be looking at how our clients can benefit from these measures.

Regarding the centrepiece of the Pre-Budget Report (PBR), the temporary reduction in the rate of VAT is particularly good news for those that cannot recover input tax such as charities, public sector bodies, health and education, and er banks and insurance companies. For other businesses there will be the administrative hassles of changing systems, prices and catalogues, especially in retail which is in the middle of its busiest period and where there is already selective discounting taking place. Indeed if I were a SMART retailer, rather than cutting prices across the board, I would the use the VAT cut both on targeted price reductions i.e. as part of the price element of my marketing mix and to squirrel some cash away.

However all businesses, particularly those working in the business to business sector will need to be mindful of the cash flow impact of the VAT reduction - firms that had budgeted VAT at 17.5% should now adjust their cash receipts downwards to reflect the new rate of 15%. This could be a useful argument to deploy if you are looking to agree a payment plan for taxes with HMRC.

The main sting in the tail going forward is the increase in NI rates for both employers and employees, which represent an extra cost and cash burden. However the impact of this could be mitigated by looking at flexible remuneration ideas such as share schemes and salary sacrifice options.

My view remains that it is confidence and job insecurity rather than cash that is the main break on people spending and it is not clear whether the measures outlined in the PBR will have an impact in this area. Clearly I hope for the sake of UK plc there is some positive benefit from all of this but I remain to be convinced. Meanwhile I would continue to urge businesses to follow the basic principles of financial management and look for the opportunities that are always going to be there for SMART businesses.