Family businesses respond to the Budget
20th March 2014
The Chancellor is right to hold his course but could to do more to support family businesses that want to grow.
Responding to today's budget Mark Hastings, Institute for Family Business with UCG (IFB) Director General, says: "There are positive measures in this Budget to please business. The cut to corporation tax, the employment allowance, abolishing stamp duty on AIM shares and infrastructure investment are all welcome.
"But with an economy treading water, Britain's three million family firms would have ideally liked to see some bolder measures; to liberate business from sclerotic bank lending, free up equity finance to rebalance the economy away from debt and spark a sustained recovery led by private sector investment.
"Business wants to see a compelling vision for the economy to inspire confidence and empower them to invest for the long-term. That will generate the genuine growth and jobs the UK needs."
Family businesses are calling for government to:
- Stimulate investment of equity and retained profits - Tax incentives for equity investment would help to combat the over reliance on debt as the prime vehicle for business investment;
- Liberate investment in entrepreneurial start-ups - Changes to, and expansion of, the Enterprise Investment Scheme would unlock new investment in innovative businesses;
- Boost investment in corporate infrastructure - A rise in the cap on Capital Allowances would encourage businesses to invest now, not later;
- Support investment in skills - A tax credit for companies to invest in apprenticeships would boost jobs, employability and skills.
The IFB budget submission outlines what measures family businesses think are necessary to get the economy moving:
Incentives for equity investment
Currently the tax system encourages firms to take on debt to finance their growth, rather than use equity or retained profits, because of the tax relief granted on debt repayments. This is problematic if there is a shortage of available lending, as there is now, and because it encourages firms to become heavily over leveraged.
The best way to resolve this issue is to equalise the tax treatment of debt and equity finance by introducing the same tax treatment for equity financing as debt financing. This will allow business to make investment decisions for commercial reasons and not tax advantage. It will also help to steer the economy away from an over-reliance on debt.
The Government's Enterprise Investment Scheme has proven popular and effective at stimulating investment in start-ups. Now it's time to expand the programme. It should be stripped of bureaucratic restrictions such as the family connected person's rules, and extended to include investment in mid-sized enterprises. This would unleash a new wave of investment in innovation and growth businesses.
To support company growth and expansion the Government should take measures to boost business investment in new infrastructure and equipment. Although recent increases in capital allowances have helped, they remain small scale. Capital Allowances should be increased even further, if only for a limited period, to move companies from a position of 'wait and see' to a position of 'now is the time to invest'.
Investing in people
In today's global economy, investment in people is as important as investment in plant, machinery and other capital goods. People capital is fundamental to the competitive advantage of organisations. In the same way research and development is recognised for the wider economic benefits it brings, the IFB recommends the government introduce a people capital investment tax credit focused on giving employment tax relief to firms who invest in the training and development of their employees through apprenticeships schemes.
Full details of the IFB recommendations can be downloaded here
Notes to Editors
The Institute for Family Business with UCG represents the UK's family business sector. Britain's three million family firms provide nine million jobs, turnover £1.1 trillion, generate a quarter of GDP and pay nearly £82 billion in tax. Family businesses are some of the largest and most successful companies in Britain producing well-known leading brands and services such as: JCB, Clarks, Warburtons, Dyson, Swire, Virgin, Spar, Yorkshire Tea, McAlpine, Reed, Ginsters and Speedo. www.ifb.org.uk