What does the chancellor’s Budget mean for UK businesses?

Nic Redfern (pictured), finance director at NerdWallet UK looks at what last week’s Budget will mean for British firms, still struggling with impact of Covid-19.

It comes as no surprise, therefore, that even with the successful vaccine rollout, the Government is exercising extreme caution in the loosening of lockdown restrictions. Whilst understandable, this is likely to be of some concern to businesses – and particularly those within the hospitality, leisure and retail sectors, who will be unable to resume business as usual for several months still.

As such, the Budget 2021 was by dominated with continued emergency support measures to help organisations survive the coming weeks.

What do the changes announced by Chancellor Rishi Sunak on 3 March mean for UK businesses?

Business rates and VAT relief extension

Given the exceptionally difficult circumstances that businesses in the non-essential, retail and hospitality sectors have faced over the course of the last year, these organisations will be relieved to hear that the Chancellor has taken measures to safeguard their operations.

The measures announced include extending the VAT cut for the hospitality sector, as seen during the Eat Out to Help Out scheme back in August, as well as a three month extension to the year-long business rates holiday for gyms and all non-essential retail premises in England.

The tax holiday, which was meant to end this month, will mean that businesses affected by Covid are exempt from paying business rates until June, followed by an additional six-month period in which rates will be discounted to two-thirds the normal charge.

The incentives, which the chancellor has referred to as ‘a £6bn tax cut for businesses’, should go some way to ensuring that organisations in hard-hit sectors can get back on their feet until they can reopen fully. Social distancing measures are likely to put obstacles in the way of many business operations until this date, with outdoor services only likely to be profitable for a small number of organisations. As such, this seems like a sensible move for the chancellor, however tax hikes will likely be on the cards later this year.

 Further extensions to the furlough scheme

In the evening prior to the Budget announcement it was revealed that the government’s furlough scheme, which pays 80% of employees’ wages for the hours they cannot work in the pandemic, will be extended until the end of September.

The furlough scheme has been instrumental to safeguarding the jobs of over 11m employees throughout the pandemic. That said, this has come at a high price for the Government, costing a staggering £53.8bn, according to recent figures.

The measure was initially intended to be a short-term support scheme, with the government planning to replace the initiative with the Job Support Scheme back in November 2020. However, the imposition of further lockdowns and restrictions on non-essential businesses meant that this was not viable. And with plans to allow only some businesses to re-open currently in place until mid-April at the earliest, the chancellor has had to respond to the inevitable calls from business leaders to extend the scheme even further yet.

As such, I believe that the chancellor’s announcement should ensure that particularly vulnerable businesses – especially those in the leisure and hospitality sector who cannot easily operate online – are well-supported as we slowly return to life as ‘normal’.

Recovery Loan Scheme and Restart Grants

Additional measures previously launched by the government to keep small and medium enterprises (SMEs) up and running throughout the pandemic have been the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans (BBLs).

The CBILS in particular, which has enabled organisations to access loans and other forms of finance up to £5m, guaranteeing up to 80% of the finance to the lender, while also paying interest and any additional fees over the first 12 months has been a vital component of business continuity throughout the course of the pandemic.

This measure has proved essential in providing fledgling companies with some much-needed breathing space. Indeed, before the budget, a recent poll highlighted that almost a third (31%) of businesses wanted to see the scheme extended, although, the it is scheduled to end on 31 March.

Luckily, the chancellor has announced that these incentives will be replaced by the Recovery Loan Scheme.

The new incentive allows organisations of any size to apply for a loan or overdraft between £25,000 and £10m until the end of 2021. What’s more, asset and invoice finance between £1,000 and £10m will also be available, and these incentives will have a Government guarantee of 80%.

Restart grants will also be offered to shops and small businesses badly affected by the various lockdowns and social distancing measures, meaning non-essential retail businesses will be able to receive up to £6000 per premises to assist in their re-opening.

Ultimately, after a year of strife and uncertainty, Mr Sunak’s generous Budget was undoubtedly necessary. Indeed, his short-term measures and emergency schemes will help businesses survive and rebuild their operations while the economy stabilises. I am hopeful that the measures announced will deliver on its goals to re-stimulate the economy, as the UK begins its post-Covid recovery.

Nic Redfern is finance director for NerdWallet UK. NerdWallet is on a mission to provide clarity for all of life’s financial decisions. As an independent financial comparison website, NerdWallet provides consumers and businesses with useful tools and insights so they can make smart money moves.