For a reason I can’t quite fathom, small businesses in the UK are routinely attacked by the government. You’d think the opposite might be true, given they employ two-thirds of the workforce (excluding the public sector), many of whom are active voters.
Successive governments, latest flavour included, are missing a trick by not actively supporting small businesses, whose owners often have considerable influence on the thoughts and feelings of their families and employees toward the government of the day.
Instead of recognising the opportunity this presents to reach working class voters – which, I would argue, was a significant factor in the shy Tory vote which surprised pollsters in 2015 – governments seem to disregard the electoral value of small businesses entirely, instead seeing them as a defenceless underclass, who can be squeezed with impunity. After all, they aren’t typically unionised, and they don’t have the lobbying budgets of big business.
As a result, their trade body, the Federation of Small Businesses (FSB), which should be free to spend its time championing and helping them, is constantly on the defensive. In the past few years alone, the FSB has reversed government policy numerous times: preventing it from piling on NI contributions in 2022, and stopping the catastrophic reversal of the rates relief for retail, hospitality and leisure which was due to end earlier this year.
Just look at Rachel Reeves’ recent Budget. She promised not to increase taxes on working people, but deliberately left enough headroom to increase National Insurance for employers. This is a tax which disproportionately hits smaller firms. These businesses do not typically have access to international debt markets, and cannot bluster their way through cashflow problems. Previously productive heads will have to roll instead. It all adds up to more jobs lost, more pain caused by government – and more votes lost.
Our small businesses tie together the social fabric of our entire electorate in a way that is massively overlooked by policymakers, and those that surround them. They are rarely thrown a bone of genuine value, and their real-world problems are routinely disregarded. Government appears to have a blindspot for the importance of small business, both economically and politically.
It seems that contributing 50% of private sector GDP isn’t worthy of further attention, despite the likelihood that the UK economy is heading for a period of stagnation, caught in a high-tax, low-growth doom loop. You’d think that Rachel Reeves might want to improve the productivity of this huge segment. But instead, it’s the same old story of death by a thousand cuts for your ordinary person trying to make a better life for themselves and their families.
Compare and contrast the experience of the public sector (which by the way makes up a ludicrous 44% of UK GDP). Here, the Labour Government handed out double-digit pay increases while asking for nothing in return. Instead, it seems a four-day week will soon be on offer, working from home in your slippers. The problem with this is not that the pay rises aren’t deserved (debatable), but that they are typically reserved for industries that have access to taxpayer-funded debt, which then gets lumped onto our small businesses, their owners and their employees.
One thing this Government could help with is enforcing better cashflow practices. Cashflow is the most pressing priority for most small businesses. Kemi Badenoch seems to understand this issue already, having launched a review of late payments while serving as Business Secretary in November.
What often gets overlooked is just how poorly big business treats its suppliers, with 90-day payment terms almost becoming the norm. Coupled with complex and opaque invoicing processes, cashflow becomes a nightmare for small business owners, who then can’t focus on what we need them to – growing – because they are scrabbling to survive.
Labour have promised us their ‘SME Command Paper’, which I’m sure will cover a range of wonderful topics that might fix everything. But actions speak louder than words, and Labour’s first Budget smacked companies, big and small, with tax rise after tax rise. On top of the changes to National Insurance, capital gains tax and a higher minimum wage, Reeves’ new rules for inheritance tax punish family-owned businesses and lump added pain onto farmers thanks to some badly-researched Whitehall policymaking.
In any case, the lessons need to be much broader than a suite of policy proposals. Big government needs to wake up and realise that growth is not something that just happens, and that stepping out of the way of our small businesses is one of the most important ways it can help.
People have to have an incentive, and the freedom to take risks in return for reward. Westminster is all-too-full of clever ideas to regulate assorted bad behaviours out of existence, and all-too-often its inhabitants fail to see how their interventions force our innovators, doers and dreamers onto the back foot. If we want growth, we need small businesses to take big risks. Whoever encourages them might just earn big rewards at the ballot box as well.
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