As of January 1, 2023, the UK had approximately 5.6 million private sector businesses, reflecting a 0.8% increase from 2022. Among these, small and medium-sized enterprises (SMEs) accounted for around 5.5 million, making up over 99% of the total business population.
Research conducted by Simply Asset Finance indicates that a significant majority of UK SMEs, 74%, anticipate that the upcoming budget will influence their future growth plans, with 31% deeming this impact as significant. In light of the current economic climate, many SMEs have responded by raising prices, transitioning to remote working, and outsourcing various services.
To support their growth, SMEs are urging the government to address several key issues. They are particularly concerned about high energy costs, with 33% highlighting this as a priority. Additionally, 28% seek a reduction in red tape, while 27% call for increased tax incentives for innovation. These measures are seen as essential for fostering growth and enhancing the resilience of SMEs in the current economic landscape.
Despite facing challenges like inflation, rising interest rates, and a stagnant economy, a significant number of SMEs remain optimistic about their growth prospects. However, this optimism is likely to be influenced by Rachel Reeves’ upcoming Autumn Budget, as it is anticipated that businesses may bear the brunt of the Chancellor’s efforts to stabilise the economy. In this context, Asian Voice has outlined the key challenges facing SMEs and what they need from the budget to thrive.
Key challenges for businesses
A new independent research commissioned by Handelsbanken Wealth & Asset Management has revealed a significant year-on-year rise in the number of entrepreneurs planning to sell their businesses. The study found that nearly a third (30%) of SME owners intend to sell part or all of their business within the next two years, up from just one in five (20%) last year.
Only 21% of respondents reported that their plans have remained unchanged, a sharp decline from 52% last year, suggesting the current economic climate is prompting many to reassess their business strategies.
Christine Ross, Head of Private Office (North) and Client Director at Handelsbanken Wealth & Asset Management, commented on the findings, stating, "Given the level of speculation ahead of potential tax changes in the upcoming Autumn Budget, it's understandable that more business owners are reviewing their options. While it's encouraging that over a third are focused on growing their business, the current sentiment indicates an acceleration in part and full business exits.”
Kiran Patel, Director at Albury Associates, also highlighted that several factors drive this current business environment of SMEs selling away. "We've seen a shift in government, and businesses previously benefited from stable forecasts and favourable tax rates for investment. However, this is likely to change, creating uncertainty for investors and business owners."
He added, "In response, some are choosing to sell their businesses, while others are exiting the market entirely. I anticipate this trend slowing by November, with many transactions pausing. Some business owners are looking to sell now and potentially repurchase later at a lower tax cost. The rationale is to take advantage of the current lower capital gains tax rates—20% for businesses and 28% for properties—minimising their tax liability before potential rate hikes under a future Labour government.
"Unfortunately, the fear of potential tax increases has created widespread uncertainty, a common occurrence in political discussions."
According to Rahil Vora, the CEO of Revital Ltd, one of the key challenges is the business rates. He said, “As a retailer with 18 shops in the UK, we are particularly affected by the upcoming changes. Currently, there is relief for business rates, which is set to be eliminated in April. Additionally, all business rates have been revised and linked to inflation, leading to costs that are becoming completely unmanageable.
“For us, there's a cap of £110,000, which means only very small SMEs benefit from the relief. Any larger SME does not qualify for this relief, as anything above the £110,000 threshold receives no support. This situation represents our biggest challenge.
“Every government and budget over the years has promised to revise the business rates system, yet nothing has been done. Typically, in the lead-up to a budget announcement, we can anticipate changes regarding business rates, but this time, I haven't seen any indication of what might happen. This uncertainty is our greatest concern.”
What businesses need
Rachel Reeves is preparing plans for up to £40 billion in tax increases and spending cuts to avoid a return to austerity. However, concerns are mounting that her budget could place significant strain on businesses and charities. This has led to a sharp decline in business confidence across the UK, marking the first drop in a year, as anticipation grows around the Chancellor’s upcoming Autumn Budget.
Amid these concerns, the question is: what do businesses really need? According to Kiran Patel, “It’s not so much about what businesses need, but what they don’t need—and that’s tax increases. If there are no tax hikes, businesses will stay on the right track, benefiting the economy. Tax increases will only slow them down. While the government’s revenue may grow, excessive red tape and higher taxes could disillusion small businesses, pushing some self-employed individuals to abandon their ventures for regular jobs."
Patel also emphasised that businesses need "a reduction in red tape and greater efficiency in government departments. The focus should not just be on attracting investment but also on improving administrative efficiency. This is particularly critical for small businesses, and really for all businesses."
When Keir Starmer first took office and Labour came to power, some British Asian business leaders shared their hopes with Asian Voice. Dr Bharat Shah CBE, founder of Sigma, had expressed optimism that the new government would create a business-friendly environment, steering clear of tax hikes that could deter investment. He stressed that "lower inflation and interest rates would greatly support SMEs, and strengthening ties with the EU would especially benefit sectors like pharmaceutical distribution, manufacturing, community pharmacies, and public health."
Amit Patel, a Mortgage Consultant at Trinity Finance, had also called for reform of the outdated business rates system to help revitalise high streets. "We need a level playing field between high street businesses and online retailers, ensuring that big multinationals and tech companies pay their fair share of taxes. This will rejuvenate high street shopping areas and support local economies." Patel underscored the importance of local businesses in the UK economy and urged the government to help them grow.
Rahil Vora also shared his insight on what businesses need, “Research and development (R&D) tax reliefs have been very beneficial over the past few years. A continuation of these incentives, along with encouragement to invest in R&D, would be extremely valuable. However, HMRC has been tightening regulations in recent years regarding what businesses can claim and how. I believe that more open policies surrounding R&D would definitely foster increased investment.”
He further added, “Retail businesses pay approximately 30% of total rates bills, despite generating only around 7% of the revenue. This imbalance is quite significant. Every government has promised to tackle this issue, and I hope that the Chancellor will follow through this time, especially since it was part of their manifesto. I am optimistic that we won’t have to wait until the next budget for action.”
In short, businesses are primarily hoping for a budget that avoids tax hikes, though current projections indicate otherwise. It remains uncertain how these plans will ultimately play out. The pressing question now is: Will the Chancellor fulfil the promises made during the elections?
