Guess how much profit I made this last year? The question came from the owner of a small but successful engineering company in my town, so I assumed the answer would be plenty.
But no. ‘£65’, came the answer. He added: ‘Now it’s HMRC which owes me money because I paid on account for last year’s profit, another perverse policy which needs revising.’
And do you know why he made so little profit? ‘Business is tough all right. But it’s also because we’ve jiggled our invoices from one year to the next and taken every cost we can against turnover. When you add up corporation tax, the rise in dividend tax and freezing the income taxes threshold, it’s not worth chasing new business. Why should I bother to bust a gut?’
A local art gallery and framing business owner tells a similar story. Ironically, he has masses of work but is considering not taking on new jobs or, indeed, retiring.
He says the same: ‘Why should I take on new work and risk my capital when working hard doesn’t bring fair rewards? Or that my taxes go to fund £60,000 mobility cars? And don’t get me started on the changes to inheritance tax for small business owners, not only the farmers. Something has gone very wrong.’
And so it has. It’s a plight you hear from small business owners every day. What they all say is: why bother? But we need them to bother.
The country needs their industry, their enterprise and their role in their local communities. After all, more profit should equal more taxes.
Eat your heart out: Chancellor Rachel Reeves’ policies have decimated the economy
It’s worth repeating until we are blue in the face just how important the UK’s six million small and medium sized firms are to the country: they provide nearly two thirds of all private sector employment – or 16.6million jobs – and about half of the country’s total business turnover.
If their appetite for risk is running out of steam, and the incentives to expand their businesses are being scaled back, then we are in even deeper trouble than we thought.
Not only will the Treasury suffer from a downturn in the corporation tax take but the owners themselves will have less to spend.
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Number of 45p taxpayers rockets 57% to nearly 1M in two years
Tax receipts from capital gains tax are already down after Labour’s tax raid, and so is investment.
Indeed, the Federation of Small Businesses (FSB) reports that over a third of its members say they will not expand capital investment this year.
The FSB’s data is horrifying: more small firms say income is falling rather than rising, with over half reporting a drop in revenues over the last three quarters. Nearly half expect a fall in the months ahead.
Hiring is already being squeezed. A fifth are planning to cut staff this year.
They say higher taxes are the main driver of cost increases, along with labour, utilities and energy. And this was before the Middle East conflict sent commodity prices spiralling.
So it’s hardly a surprise to learn that a third of the FSB’s members polled expect to contract, or shut up shop and retire early like the gallery owner, or sell out this year. What a disaster.
Eat your heart out, Rachel Reeves.
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