The Emergency Budget showed that the government are seriously committed to reducing the budget deficit, primarily through public sector cuts and an increase in VAT.
Predictably the politicians have since been arguing about whether this is too much too soon (with the risk of a double-dip recession) or exactly what was needed due to the frightening increase in the deficit. Whilst all this argument makes good headlines for the politicians, the truth is that no one can say for sure how the economy will perform.
This leaves SMEs in a difficult position when it comes to planning for the future. Will there be growth or not? When will it be time to start investing in new projects and jobs? I believe that the uncertainties will mean that many SMEs will still be focusing on survival or slow growth rather than investing heavily. What is needed is an injection of confidence into the economy and the politicians won’t be providing that at the moment: the government needs to stress how bad things are to minimise opposition to their spending cuts and it serves the opposition to argue that government policy will only make things worse.
Nevertheless, some of the statistics seem encouraging. The last published insolvency figures (for the year to April 2010) showed an overall drop in business insolvencies compared to the year before (11.4%), with businesses between 51 and 100 employees showing the most insolvencies and businesses under 26 employees the least.
According to Experian, micro businesses with 1 to 2 employees are fairing best, and this correlates with Companies House statistics that new company registrations are up 10% compared to the year before. It appears that, as in previous recessions, many people made redundant are now starting their own businesses. Some of the budget measures will assist these small firms.
Business confidence overall will not return until we see a period of economic stability and steady growth. I fear that this will not happen until we have seen how the public sector cuts and VAT rise affect demand overall, and it will still be at least another year before we will know that for sure.
However, I believe that what SMEs really need now are some politicians to champion our sector, and to start talking in more optimistic terms. We know things are still bad; what we need is to see the light at the end of the tunnel.
Gary Cousins
Business Solicitor
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