The UK government plans to spend a further 28% on UK SMEs

posted by 4 years ago in News

The question on everyone’s mind is, is that enough?

The cabinet office has recently announced that for every £3 spent on government contracts, £1 of it will hopefully go to SMEs in the UK. This should ideally be effective by 2020.

The announcement has been called a ‘big opportunity’ for SME’s by Matt Hancock, the Cabinet Office Minister. He is driving SME’s to get stuck in. Businesses will see a positive effect with the increase from 78p to £1. Hancock intends to fulfil his big plans by 2020, reaching a goal of an extra £3 billion spent on the UK’s SMEs.  He has already set targets in each government department and the Crown Commercial Service to ensure that his plan for extra SME spends is completed.

Why is the government so keen on helping SMEs?

The Minister of the Cabinet Office has explained how crucial SMEs are to the UK by stating “from computers to uniforms- there are so many opportunities for small businesses to work with us, and I want to see more of them providing value for money for the taxpayer and benefiting our spending.”

The national chairman for the Federation of Small Businesses, John Allen has also declared his excitement at how eager the government is to provide SMEs with a further 28% he has advised the Minister on how to achieve his targets.

“The government has much to gain from opening up to public procurement to smaller businesses and we welcome the government’s commitment to achieve this ambitious target”

“To meet it, the government will need to focus on robust monitoring and challenge of poor practices wherever they are found. The FSB will play its part, and will work with ministers on this important goal.”

New legislations have also recently been introduced meaning that; all in the supply chain will now have a 30 day payment term, this will include the sub-contractors and the suppliers. The government has to publish a yearly late payment report. This will make their accountability a lot clearer. When it comes to questionnaires they will no longer exist for low-value contracts, the procurement process will become faster for those who are public sector contractors. To add, the bidding processes across the sector will be less complicated. (For example forms such as; the Pre-Qualification).

The government have been persistent, they claim to have been trying for five years to provide SMEs with more money. Finally this has been achieved by both the government and SMEs getting together to set targets and introduce the new procurement mechanisms.

Between the years 2013 and 2014 it was able to work with small businesses and invest £11.4 billion, an equivalent to 26% of the central governments’ budget. It’s hoped that by 2020, small businesses will have a higher chance of working on government contracts as one-third of the national spends will be used on or with SME’s in the UK.

It is clear that the Government are committed to helping small to medium-sized enterprises and those that are self-employed, as they have provided support in the past when they have experienced a tight economic stage. Back in July there were plans to hire a small business commissioner, with the key responsibility to tackle all the late payment problems. This major issue has held a grey cloud over SMEs for a while now. An estimation by the government has revealed that SMEs could be owed £26 billion in late payments, and they are spending an average amount of £10.8 billion a year – attempting to recover the payments that are overdue. Because of this the government has uplifted anti-invoice restrictions to prevent this happening again.

Although the government has committed to increasing the amount given to SMEs, it’s claimed the new dividend tax system for the smaller businesses and those who are self-employed has caused morale to drop. For many the idea of stopping business owners being paid in dividends is worrying and it’s not as if business owners don’t have enough to worry about without these changes. A lack of holiday pay, long working hours and general stresses are all factors.

Entrepreneur, Frauke Golding, took a stance against the changes by creating a petition which thus far has received over 24,000 signatures which has already received a response from the Government (below). For the petition to be taken to Parliament for debate will require 100,000 signatures.

The government’s argument

“The Government is committed to supporting entrepreneurs and a fair tax system. Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax-motivated incorporations.”

They are insistent that small companies will benefit from other things announced at the July budget 2015. For example the National Insurance Employment Allowance will increase by a grand to £3000 in 2016 and the Annual Investment Allowance will rise to a permanent £200,000. More benefits include paying less tax, this is a result of the increases made to the tax-free Personal Allowance, which will be £11,000, and it is also down to the Higher Threshold increasing to £43,000. These changes will take place in April 2016. The Government also plan to commit to more measures such as taking the Personal Allowance to £12,500 and increasing the Higher Rate Threshold even further, by the end of this Parliament they hope to have the rate at £50,000.