THE UK economy is again in crisis mode with sky-rocketing energy prices and the war in Ukraine resulting in high inflation.
The economy needs to be stimulated as growth is slowing, raising concerns of a recession.
Economic stimulation will be most effective if targeted at our small and medium businesses. SMEs (small and medium enterprises) account for three-fifths of employment in the UK and remain the key drivers of employment and economic growth in Northern Ireland.
SMEs are feeling the inflationary pressures of spiralling energy costs, supply-chain issues, and wage demands.
Despite the prospect of a recession, the labour market is tight and staff shortages are impacting competitiveness.
Many commentators believe that the time is right for UK Government to provide effective business policies, support schemes and financing structures, as well as reliefs and other supports through the tax system to encourage entrepreneurism and innovation, particularly in the SME sector.
In a new report, 'The Next Financial Year', Chartered Accountants Ireland calls for a range of tax measures to support businesses across Northern Ireland.
These measures include ‘time to pay’ for tax debt; business asset disposal relief; innovation support; digital tax credit for SMEs; reform of the capital allowances scheme; green tax incentives and a lower rate of VAT for the hospitality sector, among other measures.
Initiatives such as these will give businesses the breathing space they need to recover from the impact of the pandemic. An element of forbearance from the UK Government will allow viable businesses to rebuild, it will encourage entrepreneurship, reduce stagnation and help to stave off the potential for a recession.
We need tax incentives which can support SME growth, research and development and employment. Initiatives such as tax credits for training and a more effective use of the Apprenticeship Levy in Northern Ireland can also help to bring young people into employment, retrain staff and reduce labour shortages in key areas.
There is also an opportunity to embrace green tax incentives. Climate change and the drive to net zero will increasingly influence tax and budgetary policy.
SMEs will have a crucial role in meeting the UK’s net zero emissions targets by 2050. However, they will only be able to deliver if they are supported by the right policy framework.
The current suspension of the Northern Ireland Executive limits the opportunity for local political leadership to address the cost of living or to support businesses as they aim to bounce back from the pandemic.
Northern Ireland business is reliant on the UK Government at Westminster to introduce the appropriate support initiatives. The current Conservative Party leadership contest has only served to highlight the upcoming economic challenge.
Rishi Sunak says that he wants businesses and families to feel that they have turned a corner “towards growth and hope”, while his opponent Liz Truss has said “We can’t just go on with our current [economic] policy. I advocate a major new economic plan.”
Perhaps the time is right for Government to consider a more radical approach to business support. Many of the potential measures that could make a significant impact are not even that radical. Many, such as ‘Time to Pay’ for tax debt and lower VAT for hospitality, have already proven their success during the pandemic.
The pandemic experience has highlighted the resilience of the business community in Northern Ireland, its proven ability to adapt and continue to trade, no matter the obstacles. At the same time, government showed how effective it can be when it intervenes swiftly and in the right way.
There now exists an opportunity not only to improve the grants, programmes and tax reliefs already in place that support these activities, but also to introduce new measures that reflect the current economic environment.
The Next Financial Year position paper, which details over 100 individual recommendations to optimise the business environment, can be downloaded in full at the Chartered Accountants Ireland website.
:: Zara Duffy is head of Northern Ireland at Chartered Accountants Ireland.
