The UK Budget 3 March 2021: Good news and not so good news for business

The big shock to UK businesses is of course the huge jump in corporation tax to 25% in 2023, the upper end of what had been expected. Fortunately small businesses with profits of £50,000 or less will continue to pay tax at 19%. Businesses will be keen to see the detail on the new super deduction for investment whereby they can reduce their tax bill by 130% of cost of investment. The anticipated and feared capital gains tax reform did not materialise, at least not for now, much to the relief of entrepreneurs and to private equity firms who dread their carried interest being taxed as income.

The Chancellor is to be applauded for focusing on getting Britain working again as we hopefully come out of the lockdown. It is odd that the furlough scheme is to be extended to September when the lockdown is due to be fully lifted by 21 June; does he know something we don’t?  The new Help to Grow initiative to provide MBA style training for SME managers, with the government funding 90% of the cost, is certainly welcomed, not least by participating business schools. What we also need is more financial support for start-up businesses not just government matching funding for companies that have already received third party investment. Whilst the Future Fund has invested £1 billion in 1,000 start-ups this had to be made on the back of third party investment already received. SME businesses raising money for the first time have seen a 44% decrease in finance in the period since March 2020 compared to the prior year and 20% fewer deals according to the Plexal Start-Up Tracker: VCs and business angels are avoiding this space.

Furlough must come to an end eventually; we need support for the many people expected to be made redundant and encouragement to start their own businesses. The new recovery loan scheme to replace the bounce back loans and CBILS, continuing business rates relief to end of June, and the 5% reduced rate of VAT for hospitality businesses to end of September are certainly welcomed. As is the first ever UK Infrastructure Bank which will support some £40bn of green, innovative, fast growing businesses.

Going forward if and when the Chancellor does eventually raise CGT rates this could result in entrepreneurs moving overseas and PE firms also relocating to avoid their carried interest being taxed as income. A recent report from the start-up database Beauhurst , revealed that 85% of founders would consider moving their companies abroad and 72% of business angels would be less likely to continue investing in UK companies if CGT reform came in – scary figures!

The Chancellor is clearly determined to make major inroads into reducing the huge national debt and restoring the economy before the next election in May 2024; has he gone far enough or indeed too far with this?

My, and others, comments on the Budget, including from a number of venture capitalists in the UK, can be seen here: