The trickle-down effects of Osborne’s Autumn Statement

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To an outside observer, the SME agenda may seem noticeably absent from this year’s Autumn Statement. But read through the details of Osborne’s statement and we find that actually there are a range of measures that will directly impact the small business owner.

Although the Government may see the Commissioner and the Small Business Conciliation Service as its crowning achievements, their broader agenda on devolution, infrastructure and empowerment of the regions could go some way to transforming SME experiences of the UK business environment.

Good news for rural SMEs
A key feature of Osborne’s Statement was the commitment to create 26 new enterprise zones, which will include the expansion of eight existing zones. Crucially, 15 of these zones will be in smaller towns and rural areas like Ipswich and Carlisle. This is all part of a commitment to a £12 billion local growth fund, enabling businesses to flourish regardless of geography. While many large businesses tend to be focused in large metropolitan centres, small businesses are often rooted in local communities, so this announcement will be a real boon for small businesses across the country.

Funding for labourers through infrastructure
A promising development for SMEs in the construction and manufacturing industries was the Government’s commitment to invest over £100 billion into UK infrastructure. With such huge spending there will no doubt be a weighted increase in demand for SMEs with the right skills. Whether directly or indirectly, spending on infrastructure will have a positive impact on all SMEs in the UK, creating jobs outside of the cities and boosting growth.

Deeper devolution could go either way
Osborne also spoke on the topic of devolution, reiterating the point made in the last Budget that autonomy over business rates will be given to local authorities and mayors in major cities like Manchester. This means that many SMEs may pay lower rates, but there’s also nothing stopping local authorities from raising rates too in less fortuitous times. Fortunately, 600,000 start-ups will continue to receive business rate tax relief for another year, giving our very smallest businesses certainty about their outgoings as they create their business plans for 2016.

It was also fantastic to see the Government moving to give credit rating agencies the ability to share SMEs’ credit information from designated ‘big banks’ to all other financial providers as part of their efforts to stimulate lending and increase competition in the SME credit market.

Finally, I welcome the news that SMEs will be exempt from the Government’s 0.5% apprenticeship levy, enabling small business owners to hire new talent to help their business thrive without the financial pressures imposed on larger firms. This will be welcome news, since more than one in ten SMEs report a shortage of skilled staff.

Our most recent SME Confidence Tracker cited increased competition and a lack of demand as the greatest challenges to businesses, both of which the Autumn Statement touched on briefly. But with SME optimism at a record low, the Government has to provide as much ‘forward guidance’ as possible so that confidence levels and SMEs’ prospects for growth rebound in 2016.

The seeds sown in this Autumn Statement are perhaps the most important of this Parliament as the Chancellor seeks to balance the books. From the look of things, he is trying to create the space and support for SMEs to help his ambitions.

A change in supply-chain culture is needed to address the problem of late payment

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Late payment has been a barrier to growth for UK businesses for decades, in some cases threatening their survival. Putting this issue into context, in February, Bacs Payment Schemes (Bacs) reported that in excess of £32 billion is owned to SMEs in the UK.

Larger businesses are often blamed for the havoc this wreaks on SMEs, but are they really to blame? Sadly, the answer is frequently yes.

As an example, in January it was reported that household brand, Heinz, more than doubled the time it takes to settle supplier invoices.

Breaking supply chains

SMEs face the hard edge of a large corporate’s buying power. They have Hobson’s choice: either accept crippling payment terms or lose the deal. This situation is particularly harsh when payment terms change mid-term. One example I saw recently was of an SME having to cope with an extra 45 days before payment.

The construction industry is a particularly brutal arena and one where we have seen large firms withhold cash for so long that their SME sub-contractor fails. The larger business then claims liquidated damages and refuses to pay a penny. This causes real hardship for both the business and its employees, and simply cannot be in anyone’s long term interests.

All of this goes on despite the creation of the Government’s Prompt Payment Code, which sadly seems to have done little to curb the problem.

New measures

The current situation has led to new legislation that will come into effect in April 2016, requiring the UK’s largest firms to report and account for their timing and practices in relation to paying smaller suppliers. Yet further action is needed.

Business Secretary Sajid Javid’s creation of the Small Business Conciliation Service – which will settle disputes between small and larger businesses over late payment – is welcome news for many. But this will be a last resort for many SMEs, who will likely prefer to avoid biting the hands that feed them; instead, opting to resolve disputes directly with these customers.

So, while I welcome the creation of this service; it’s not a cure-all remedy and, fundamentally, it fails to address the root cause of this pandemic issue.

Trading partnerships – creating a new culture

To deliver real change, there needs to be a step-change in attitudes towards SMEs and a growing understanding of supply-chain relationship management throughout the country. We should support and promote the view that suppliers should make profit too; seeing the stability, growth and wellbeing of these suppliers as being intrinsically linked to our own success.

Instead of viewing suppliers as separate entities, larger firms must think of SMEs as an extension of their own businesses. And this ethos does exist in some pockets of UK industry.

At the Business in the Community Responsible Business Awards on 7 July, I heard a great example of this trumpeted. The Enterprise Growth Award recognises companies that work with local SMEs, engage with suppliers and thus drive growth in local economies.

This year’s winner was The East of England Co-operative, which has built partnerships with 140 local suppliers and judges commended the business for embedding a culture that emphasised the importance of strong supplier relationships. This is a fantastic example of how larger businesses can create partnerships with their smaller peers to offer tangible benefits to regional economies through output and employment.

While unlikely to happen overnight, this transformation must be championed by government but embraced and advanced by businesses throughout the country. Only when mutually beneficial trading relationships are common-place, can the situation of late payment – and its negative knock-on effects – become a thing of the past.