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Autumn Budget 2021: What It Means for SMEs

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In the Budget announcement yesterday, Rishi Sunak set out the agenda for long-term economic recovery following the pandemic.

The tone of the Chancellor throughout the announcement was vastly optimistic. Sunak delivered a raft of new pledges and public spending commitments, while heralding the strength of the post-pandemic economy, thanks to strong growth and public spending.

But what are some of the key take-outs from the announcement for UK SMEs?

Economic outlook positive for UK SMEs but inflation remains a concern

The Chancellor confirmed that the economy is forecast to return to its pre-COVID level at the start of the year, with a 6.4% growth planned by the end of 2021.

 

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Unemployment is also at a lower level than it was initially forecast. In July, unemployment was predicted to peak at 12% - today the peak is expected to be at just 5.2%. The Office for Budget Responsibility Forecast for business investment has also gone up.

Despite this optimistic outlook, the current landscape remains challenging for UK SMEs, with many navigating factors such as inflation, the end of the furlough scheme, manufacturing delays, product shortages and staffing challenges.

The Chancellor conceded that inflation was 3.1% in September and is likely to rise even further, to an average of 4% in the next year.

Sunak explained that inflation is driven by two global forces – the first being that demand is exceeding supply across most industries as economies start to pick back up after lockdowns, and the second being linked to requirements for energy surging, putting a strain on prices and leading the global costs of oil and gas to double.

The Chancellor confirmed he is working closely with the Bank of England to implement a strategy to manage inflation.

 

Extension of Recovery Loan Scheme

Rishi Sunak also announced the extension of the Recovery Loan Scheme until June 2022. Launched in April 2021, the scheme was a key measure to help businesses plan their recovery post-pandemic and was initially meant to close in December 2021, although the terms of the scheme have been amended slightly.

 

The scheme is designed to either allow funding for SMEs at a reduced cost, or to facilitate loans that lenders would struggle to fund as part of their everyday ‘business as usual’ policy - including innovative, technologically advanced and green assets.

Lending

In the past, a lot of traditional lenders might have shied away from assets that aren’t ‘tried and tested’, which means highly innovative assets sometimes struggle to secure funding.

The security provided through RLS will help address this for the long-term and will give lenders the opportunity to adjust this BAU credit policy. The scheme is offering funders the opportunity to be innovation-focused and support businesses through their own transformation, whether they’re looking to embrace emerging tech or work towards a more sustainable future. By extending the scheme, the Chancellor is giving funders broader scope to adjust their credit policies, which can only improve the long-term impact of RLS on facilitating access to funding for SMEs.

Ultimately, RLS is a stable product that is a great tool to power SMEs in their recovery from the pandemic. As well as this, the long-term impact of the scheme will be easier access to funding for assets that are at the forefront of innovation, including technology in the green space. As an SME funder, Paragon welcomes the extension of the Recovery Loan Scheme.

 

Business rate changes

The Chancellor announced a range of business rate cuts, with some of the sectors impacted by the pandemic the hardest (retail, hospitality and leisure) receiving a 50% discount. Overall, the tax cut is anticipated to be worth around £7 billion.

Green Home

The Chancellor also confirmed that until 2035, plant and machinery used on-site for renewable energy will be exempt from business rates. A new investment relief will also be launched to encourage investment in technologies like solar panels – although more information will be revealed about this at a later date.

Sunak confirmed that business rates will now be re-evaluated every three years.

 

Rise to the Minimum National Living Wage

Sunak confirmed a 6.6% increase to the National Living Wage to £9.50 an hour, from 1st April 2022. This measure is being introduced as part of a £6 billion package to support the labour market, including investment into developing skills and a reduction of the taper rate for Universal Credit.

This pay increase aims to support millions of low-paid workers. The government is also increasing the National Minimum Wage, so young people and apprentices will also see pay increases.

 

Levelling up by helping businesses to innovate and grow

A range of new measures have been announced to support local and innovative businesses across the UK, as part of the Government’s ‘levelling up’ agenda.

The Autumn budget confirmed the launch of the new £1.4 billion Global Britain Investment Fund, which will help spread economic opportunities more evenly across the UK by supporting investment in the UK’s life sciences, offshore wind and automotive manufacturing sectors.

The Government is also reinforcing efforts to ensure small and medium sized enterprises (SMEs) can access the finance they need, wherever they are across the UK.

UK Map

An additional £150 million has been committed to the UK-wide Regional Angels Programme. The programme aims to reduce regional imbalances in access to early stage equity finance for small businesses. The British Business Bank’s (BBB) Regional Funds have been extended into the North East and South West of England, with additional funding secured to set up new funds in Scotland and Wales, and to build on existing programmes in Northern Ireland.

There will also be continued funding for the Start Up Loans Scheme, which provides loans and mentoring to people across the UK who want to start a business.

 

Apprenticeships

The Government is increasing apprenticeships funding to £2.7 billion by 2024-25.  As part of this, it is continuing to meet 95% of the apprenticeship training cost for employers who do not pay the Apprenticeship Levy, while also delivering a range of new measures.

Apprenticeship

These include an enhanced recruitment service for small and medium-sized enterprises (SMEs), helping them hire new apprentices. It is also offering flexible apprenticeship training models to ensure that apprenticeship training continues to meet the needs of employers.

By Spring, the Government will also consider changes to the provider payment profiles aimed at giving employers more choice over how the apprenticeship training is delivered. It will explore the streamlining of existing additional employer support payments so that they go directly to employers. It is also introducing a return on investment tool in October 2022 to ensure employers can see the benefits apprentices create in their business.

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