Pre-budget: plans get mixed reaction from SMEs

Small- and medium-sized businesses have welcomed government plans to ease lending in a bid to boost their cash flow, but expressed disappointment at the small drop in VAT rates following Alistair Darling's Pre Budget Report.

Darling pledged to cut VAT from 17.5% to 15% for a year, starting in December, in the hope that it will encourage consumers to spend.

But the Federation of Master Builders (FMB), which represents construction SMEs, said it was not enough.

FMB director general Richard Dement warned that the 2.5% cut was "unlikely" to have an effect. "If the government was serious about kick starting the building industry he would have reduced VAT to 5% on all repair and maintenance work. "

But news that the government will start up a temporary Small Business Finance Scheme, which is aimed at improving SMEs' cash flows by lending between £1,000 to £1m to small firms on flexible terms was better received.

Martin Hesketh, managing director of Brookson, which provides accountancy and tax advice to small contractors said the move appeared "sensible".

He also welcomed the introduction of a less punitive timetable for small businesses to pay tax, and the deferment of a planned 1p rise in the small business corporation tax.

He added: "We particularly welcome the Chancellor's decision to leave tax rules for umbrella companies unchanged, and his commitment to enforce the current legislation."

But Bob Cole, managing director of Holloway White Allom, feared that the measures may not be enough to help the construction sector.

He commented: “The slight relief for small subcontractors will only marginally assist their cash flows, so critical at these times of limited availability of bank finance.  Any small contractor facing redundancies will have found scant benefit from the measures.

“As specialists in building, restoration and the maintenance of prestigious properties, we at Holloway White Allom see no impact on our own marketplace or on our client base, since none of the Chancellor’s proposed measures will affect the top end of the construction sector.”