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Politics at the dinner table

From party promises to tax credits and changes for SMEs. Here are a few more Election talking points for your table.

Adriana Amato Dec 10, 2019

In Samuel Beckett’s tragicomedy Waiting for Godot, two men – Vladimir and Estragon – spend the entire play waiting for someone who never arrives. As they wait, the men encounter increasingly weird scenarios and busy themselves with repetitive conversations.

Ever since the EU referendum in 2016, politics in the UK has felt a bit like Waiting for Godot. We’ve waited for a resolution and over three years later, none has materialised. All the while, the public discourse has looped around the same few topics.

The hope is that this election will finally end our interminable waiting. For the UK’s businesses, a dose of certainty will be welcome. If the Conservatives win, we know an EU exit is very likely. If Labour wins, they’ll hope to implement a radical manifesto (with all the cost and tax increases that comes with). 

Despite an attempted anti-Brexit insurgency, the Lib Dems’ popular support has tailed off. The choice facing the UK is two competing visions for the country. Who will be our Godot, and finally release us from what has felt like an endless wait?

 

The Conservative Party:

 

The Conservative Party’s manifesto says it wants to back Britain. It's a reassuring consistency and an apparent pro-business message. After all, Capitalise’s aim is to support British businesses with funding when they need it.

But although the manifesto tries to sound insurgent, it’s arguably quite, as the party’s name suggests, conservative. For example, the Conservatives say they intend to “redesign the tax system”. But drill deeper and the party’s plans amount to tinkering. 

The long-planned Corporation Tax (CT) rate reduction to 17% has been officially shelved. Instead, CT will be maintained at 19% under a Tory government. The manifesto also promises that the Seed Enterprise Scheme and Enterprise Investment Scheme will carry on. 

A notable change, however, is an increase in the research and development expenditure credit (RDEC) rate from 12% to 13%. The party has said it will review the definition of R&D, too, so that areas such as cloud computing and data are adequately incentivised.

A one percent increase isn’t much to write home about – but it is something. And although RDEC is ostensibly for large companies, it’s important to remember that the scheme is used by SMEs, too. 

RDEC is also claimed by SMEs who have been subcontracted to do R&D work by a large company or who have received a grant or subsidy for their R&D project (EU state aid rules prevent grant-funded SMEs from using the SME R&D tax incentive).

And let’s not forget, of course, about the Conservative campaign’s mantra: “Get Brexit done”. With a conservative victory, our EU exit is assured – with or without Boris Johnson’s deal. All throughout the last three years of uncertainty, the UK’s startup and scaleup scene have been a bright spot for our economy.

If voters decide that Boris Johnson’s pledge to get Brexit done is what they want – then so be it. But a conservative government – which likes to label itself as the party of business – must be careful to not throw the baby out with the bathwater. 

The Labour Party:

 

At the end of the day, Labour’s plans to extend the welfare state hinges on increasing tax revenue. This can’t be avoided and, to the party’s credit, it’s been upfront about this reality. 

Labour has pledged to raise the CT rate to 21% from April 2020, before rising to 26% in April 2022. That’s a tax hike that’ll make many business owners wince.

The party has promised, however, to implement a separate small profits rate for firms with a turnover under £300,000-a-year. This rate will stay at 19% for now before rising to 21% in April 2021.

Corporate tax reliefs are also in line for a root and branch review. The review will be conducted by the Treasury and it will be informed by an expert panel which will include representatives of HMRC, the Office of Tax Simplification, the National Audit Office, trade union

representatives, business organisations and taxation experts such as the CIOT, AAT and ICAEW.

The UK’s businesses will await this review’s findings with bated breath. One thing we know for sure is that Labour plans to scrap RDEC, the large company R&D tax credit. For the many SMEs who have to use this relief, this will be a punch in the gut.

Instead of trying to foster innovation through the tax system, Labour plans to target lending. Its manifesto promises to create a National Investment Bank, and a network of Regional Development Banks, to provide £250 billion of lending for enterprise, infrastructure and innovation over 10 years. 

Smaller loans will be available through Labour’s newly planned Post Bank based in Post Office branches. These Post Bank loans will enable “thousands of bottom-up

transformational changes by start-ups, small businesses [and] local co-operatives” up and down the country.

Lending that’s smart and accessible is precisely what the UK’s businesses need. The hope is, however, that a Labour government won’t try to do it all alone. If the aim is to increase lending, then there’s a vibrant, already existing infrastructure in place. All that’s needed is for them to leverage it.

 

We can't be sure which way this election will swing, but we can help you figure out your client's naviagte the financial future ahead. Book in a consultation to hear about your client's options. 

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