With the new Labour government taking office earlier this month, and after a rather turbulent few years for the Conservatives, there’s a feeling that some certainly is now in the mix. This should help stabilise the economy and the landscape for business. But what should we expect from the new order?
It’s fair to say there wasn’t much of a mention of small businesses in any of the key party manifestos, but in digging deeper there are a few clues about what Labour’s win means for small business owners and sole traders. Here are some of the areas which are likely to feature in the new Government’s policies:
Help with late payments
For small businesses, late payments can be make or break. Recent research shows a total of £20 billion is locked up in unpaid invoices of UK small businesses – an enormous amount. Labour aims to introduce laws to ensure larger firms disclose how quickly they pay their suppliers. This is likely to be reported via the audit process, by documenting the firm’s payment practices in their annual reports.
Reduced energy bills
One of the flagship Labour pledges was to introduce a publicly owned clean power company – Great British Energy. The aim is to reduce energy bills for small businesses but the concept isn’t proved – watch this space!
Reform of the business rate scheme
The current business rates arrangement has been criticised by Labour, and there could be a replacement system introduced with a new tax scheme for business properties. Whilst details are to come, it appears that larger businesses – including multinationals and tech companies – will pay more and small business less.
Investment in HMRC
Labour has said that it will “modernise HMRC and change the law to tackle tax avoidance” by increasing registration and reporting requirements, strengthening HMRC’s powers and investing in new technology. There has been widespread criticism that HMRC hasn’t kept pace in recent years, and many businesses find it difficult to understand the systems and schemes in place. Although change is unlikely to come quickly there’s acknowledgement that there’s much to do here.
Access to public contracts
Public tenders and contracts have long favoured larger firms, but the focus with Labour should be to level the playing field so that smaller businesses can more easily access lucrative government contracts. The plan is to include at least one small business on the shortlist whenever a public contract goes to tender.
Better funding and banking
The state-owned lending body which provides funding for start-up businesses, the British Business Bank, will be awarded a “stronger mandate to support growth in the regions and the nations”. There are also steps to introduce new high street banking hubs for businesses and consumers to improve access to face-to-face banking.
Tax and VAT
Income tax is set to remain unchanged so many workers – including sole traders – will end up paying more tax given inflation and fiscal drag. And Labour could also reduce the VAT threshold – it rose from £85,000 to £90,000 in this year’s Spring Budget – but might be slashed to help fund public services such as the NHS. This could bring high numbers of small businesses into the VAT net meaning yet more admin.
Review of the National Living Wage
There has been talk that Labour will create a “genuine living wage” which reflects the cost of living. The higher wage would also apply to all adult workers, not just those aged 21 and over. These changes could again increase labour costs for employers, putting strain on businesses.
Changes to employment law
When it comes to legislation Labour has suggested that it will act quickly – within its first 100 days in office – to overhaul employment law by ending restrictions on trade union activity, ending “fire and rehire” practices, and outlawing “exploitative” zero-hours contracts. In addition employees will enjoy more rights from the day they begin working. This will see workers entitled to parental leave, sick pay, and unfair dismissal rules, which currently apply after two years of employment.
The Labour government plans to make some far reaching changes, which could significantly affect businesses.
We’ll keep you updated of key decisions and their impacts, as things are announced.