Government pledges £350m to help small companies - but is it enough?
Skills Secretary John Denham has pledged £350m to help small companies put staff on short courses aimed at increasing productivity, and says he is in talks with the major banks to ensure they continue to lend to SMEs during the economic downturn.
However, despite announcing action on late payment issues, the Government has rejected Tory proposals to reduce National Insurance liabilites for small firms and allow for deferred payment of VAT bills.
Late Payment Problems
Lord Mandelson, appearing before a committee of MP's said that he would ensure that Government bodies paid suppliers on time - by speeding up payments, as small companies are often the most vulnerable to late payment problems.
"We have taken a very strong lead in announcing that central government will pay money to its suppliers, many of whom are SMEs as soon as possible."
John Denham announced that all Government departments and agencies have been told to pay small business suppliers within 10 days - a move welcomed by the Federation of Small Businesses.
Tory Proposals
On Monday, the Conservatives called for a 1p cut in the rate of National Insurance Contributions paid by employers of five or more staff. They have also suggested that small companies should be able to put off paying their VAT liabilities for six months.
The Government has rejected these proposals - suggesting that the plans would divert money from other tax breaks that already benefited businesses.
Lord Mandelson said:
"We must be careful in this situation of not robbing Peter to pay Paul. We must be careful of creating a situation where some firms are building up future problems for themselves by decisions which are being taken now."
What Small Companies Really Need
Unfortunately, many small businesses may well be insulted by this headline-grabbing announcement.
The small companies' tax rate has risen from 19p to 21p over the past two years - with an additional increase to 22p due to take effect from April 2009. Surely, a freeze at the current level (at best) would actually provide real help to small business owners.
Small businesses have also had to spend time and money in order to comply with the huge increase in regulations over the past 11 years - from changes in employment law, to the Companies Act, IR35 and other tax clampdowns - such as "income shifting" which was postponed at the last Budget.
In troubled times, small businesses do not want to send staff on "productivity training" - they need real assistance - in the form of eased regulations and a fair break from the increased burden of taxation.
Your Views?
Please feel free to email the editorial team if you have any comments you'd like us to publish on Bytestart.
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The enhanced operational activity resulting from training takes a period of time to realise benefits, l am very much in agreement that training is essential, and not an optional extra to any organisation whether it be large or small, but investment in training is a mid to long term gain. Small businesses need to resolve their profitability, and all importantly their cash flow worries. Without cash, the lifeblood of a business, it simply dies.
When trade slows down, the first reaction is to cut overheads to retain profitability, namely headcount and marketing are the first expenses to be cut. Whilst this is a perfectly valid means of survival, it presents problems. For example, if a business reduces headcount, the debtor collection process could suffer by not having the resource to chase unpaid invoices, therefore stifling vital cash inflow to the business. If a business reduces marketing spend, it could well lose out on business to its competitors, thereby getting sucked into a downward spiral. It really is a ‘survival of the fittest’ in the absence of immediate financial assistance to small businesses from the Government. Those with stronger Balance Sheets showing a healthy cash position will win, and those who don’t, face very difficult times ahead."
David Parker, Purpleaccounts.com
Posted October 22, 2008
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