42 corporate finance
UK tax regime does not support enterprise, say 71% of private businesses
Despite the Government introducing a number of policies intended to support enterprise and innovation, the majority of private businesses believe the tax regime fails to do so. Three quarters of private businesses interviewed by PwC as part of its fourth Enterprising UK survey say the tax regime is unsupportive of enterprise*, up from 59% in 2007
Recent SME-targeted measures such as increased tax relief for research and development will have no impact according to 60% of private businesses questioned. The same will be the case for grant funding for apprenticeships, the extension of the small business rate relief holiday, and reforms to the Enterprise Investment and Venture Capital Trusts schemes say 58%, 70% and 61% of private businesses respectively.
If private businesses believe measures aimed to help them have no effect, the same cannot be said for broader tax changes. The least popular has been the increased rate of national insurance contributions, with 91% of those firms surveyed saying this has had a negative impact on their business. Likewise three quarters of private businesses believe the 20% VAT rate has had an adverse effect, while 70% feel the continuation of the 50% rate of income tax is proving detrimental. Overall 79% of businesses say the more onerous tax regime is an obstacle to growth.
Suzi Woolfson, office senior partner at PwC Uxbridge, commented: “Private businesses hold the key to future economic growth, many having weathered the recession better than their listed counterparts. The Government says it recognises this but certain measures designed to support business endeavour are not having their intended effect. Incentives and initiatives are all well and good if they’re easy to access, but the businesses we speak to want changes that make their everyday lives easier. Cutting red tape is important here: 44% of private businesses we surveyed say their administrative burden needs to be reduced, up from 29% two years ago. Plans to simplify the tax regime should also help and we hope to hear more on this in the chancellor’s autumn statement.”
The growth potential of private businesses is reflected in the optimism of survey participants. Some 82% expect the business environment to improve over the next five years. Almost as many (78%) expect their
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revenues to grow over the next 12 months and 70% expect their pre-tax profits to increase.
The top three strategies for growth will be increasing market share, developing new products or services, and expanding into new geographic markets – with the BRIC economies of particular interest.
Ray Thomas, tax partner at PwC Reading, commented: “Private businesses are not naive. Those businesses that have survived a tremendously tough few years are strong, ambitious and focused on the longer term. Of course the picture varies across sectors and regions of the UK. The construction industry has suffered particularly and is the least confident sector we surveyed. Businesses in Scotland and Northern Ireland were also less optimistic, although markedly brighter than they were two years ago.”
Crucial to firms’ future prospects will be access to the right people and skills. Over half (56%) of respondents plan to increase headcount in the next year, up from 31% in 2009. The need to recruit externally highlights optimism on growth, but also reflects skills shortages within firms. Just 16% of companies felt they had the right people with the right skills to help them get where they want to be in five years time.
Interestingly though,
when it comes to new recruits the top priority is soft skills, specifically people with the right attitude and ‘fit’ with the business.
Other significant barriers to growth highlighted by survey participants include inflation, increasing regulation and access to credit.
Woolfson continued: “When a business is looking to expand, availability of finance can make the difference between success or failure. While some private businesses have increased their cash reserves, the reluctance of banks to lend is still a major risk to the sector. The chancellor’s plans for a credit easing scheme could be a big help here, but much will depend on the level of
THE BUSINESS MAGAZINE – THAMES VALLEY – DECEMBER 11/JANUARY 12
*71% of survey respondents said the tax regime was not very supportive/ not supportive at all. Just 20% of respondents said the regime was quite supportive and none believed it was very supportive.
finance available, whether it will be easy to access, and the cost to the borrower.”
Woolfson concluded: “The UK’s private businesses make a huge but rather unsung contribution to the economy. Anything that can be done to help them realise their ambitions should be seized upon. At the moment many private businesses feel the finance, tax and regulatory regime works against them.”
PwC ‘s fourth Enterprise UK survey is based on research of decision makers at 300 UK-based privately owned companies. Survey responses were supplemented with in-depth interviews with business owners and CEOs. 37% of participants had an annual turnover of £10 million or less; 31% between £10m and £50m; 16% between £51m and £199m; and 18% of more than £200m.
If you would like more information on the survey or a copy of the full report, see details below.
Details: Laura Baldock
laura.baldock@
uk.pwc.com
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