UK SMEs want tax cuts as Budget worry holds back investment

Small businesses want tax cuts and lower operating costs from the Government's first Autumn Budget, according to research from Bibby Financial Services. The survey found only one in five UK SMEs expect the Budget to benefit them.

The poll of 1,008 SME owners and decision-makers shows cost pressure remains the main concern for smaller firms across manufacturing, construction, wholesale, transport and services. Nearly half, 46%, want a cut in corporation tax, while 43% said the Government should avoid any further rise.

A freeze on capital gains tax was the third most common demand, cited by 41% of respondents. Some 39% want a reversal of higher employers' National Insurance contributions, while 36% said business rates relief currently available to retail, hospitality and leisure should be extended to other sectors.

The findings point to a wider wait-and-see mood among smaller companies ahead of the Budget. More than half of those surveyed, 54%, said they are delaying major investment decisions until after the fiscal statement.

That suggests uncertainty over tax and business costs is affecting spending plans at a time when ministers have adopted an explicitly pro-business message. The research indicates many firms are not yet convinced that agenda will translate into measures that improve conditions for smaller employers.

Cost pressures

The survey highlights how central tax policy has become to SME sentiment. Rather than prioritising access to finance, skills or export support, respondents put direct cost reduction at the top of their list.

For many small firms, corporation tax and National Insurance are immediate fixed costs that shape cash flow and hiring plans. Business rates are also a longstanding issue for companies outside the sectors currently receiving support, especially those operating from physical premises and facing high overheads.

The responses suggest smaller businesses want practical action rather than broad rhetoric. The fact that only 20% expect the Budget to benefit them underlines that gap.

Derek Ryan, Chief Executive Officer for North West Europe at Bibby Financial Services, set out the company's view of what SMEs want from ministers.

"Prime Minister Andy Burnham has said he wants the UK to be the most 'pro-business country in the world'. If he's serious, he must lower the cost of operating. That means cutting corporation tax, or at the very least guaranteeing it won't rise again and reversing the increase in employer National Insurance. Extending business rates relief beyond retail, hospitality and leisure would also ease pressure on cash flow, free up working capital and remove a major barrier to growth," Ryan said.

Investment pause

The finding that 54% of SMEs are holding back major investment adds another layer to the picture. Delayed decisions on equipment, hiring and expansion can have broader effects on economic activity, particularly given the role small businesses play in employment and local supply chains.

The sectors covered by the research include parts of the economy that are especially sensitive to shifts in tax and labour costs. Construction, transport and manufacturing businesses, for example, often face narrow margins and significant wage bills, making changes in employer contributions and other overheads particularly significant.

The same applies to service businesses and wholesalers managing fluctuating demand and input costs. For these firms, budget planning can become more difficult when the direction of tax policy is unclear.

Ryan said the delay in investment reflects a lack of certainty over what businesses will face after the Budget.

"SMEs have heard pro-business promises before and been let down. Now they are waiting to see whether this Government will deliver. More than half are holding back major investment until after the Budget, unable to plan for growth without knowing what their tax bill will look like. That's money not being spent on new equipment, new hires and new products, which is exactly the activity this Government says it wants to unlock. SMEs don't lack ambition. What's holding them back is the weight of the current tax burden. Ease that burden, give them stability, and they'll invest," he said.

The research was carried out in August by Critical Research among SME owners and decision-makers across the UK.