BGF comments on the impact of the Budget on SMEs and entrepreneurs

Mike Sibson, investor at BGF and head of its Aberdeen office, comments on how the UK Spring Budget impacts business growth in the North east of Scotland.

He said: “With public finances in a precarious position, following the unprecedented levels of borrowing to support the economy through the pandemic crisis, this budget was always going to be a challenging balancing act.

“In recognising this, the additional fund to support those sectors most acutely hit, namely retail and hospitality, along with investment and measures to encourage economic recovery and growth, particularly in relation to the Energy Transition Zone and the Global Underwater Hub here in the North-east, will be warmly welcomed.

“We will need oil and gas for a long time to come, but the city must position itself at the forefront of the energy transition, and the funding for these projects, along with the North Sea Transition Deal, is a major step on this journey, helping ensure we capitalise on the opportunities in offshore wind, hydrogen and CCUS.

“Entrepreneurs in the region will be pleased that there has been no mention of changes to Capital Gains Tax (CGT). The UK is one of the most attractive places to start a business, and the North East has a long tradition of entrepreneurial companies. The mooted changes to CGT would have been unwelcome.

Whilst the deferral of the corporation tax rises to 2023 are welcome, the increase to 25% will be a blow to many businesses in the North East, given the severity of the disruption they continue to face following the pandemic, coupled with the impact of fluctuating oil prices and a five year downturn prior to COVID.

The UK will take a long time to pay back the debt it took out in the pandemic, and companies will be the same. Those who took out coronavirus business interruption loans (CBILS and BBILS) and deferred VAT and PAYE payments now need to find the cash to pay these back.

It is very welcome that the furlough scheme has been extended, but businesses will need to start contributing. When it ends in September, companies will also be taking all of their staff back on the payroll.

Furthermore, companies will be facing working capital challenges. When business picks up, they need working capital to pay suppliers before they get paid for their own products or services. It’s why more businesses face cash challenges in an upturn.

There are therefore going to be lots of demands on a business’s cash, and for most there won’t be any catch-up in business once restrictions are eased. It is not as though the flood gates will open - it will be a slow recovery towards pre-pandemic levels.

“They therefore need their cash in the short term for repaying their debt and rebuilding their businesses. While raising corporation tax may be a good solution to balance the books for the government, the increases need to be gradual and carefully monitored to ensure that businesses have the opportunity to recover.

“Where businesses are not able to meet all of these demands on their cash, the other solution is raising equity. BGF has long called for the establishment of a National Renewal Fund, and whilst we await the detail, we welcome the chancellor giving additional flexibilities to the UK’s pensions funds. For others the answer will be to raise private growth capital, which is where BGF can help.”

Read the latest issue of the OGV Energy magazine HERE.