Tax hikes and uncertainty to be bad news
THE new government has wasted no time in swinging the axe on public spending. This week £6bn of cuts were announced. Business organisations are overwhelmingly in favour of the cuts, but what does this mean for entrepreneurs and start-up companies?
Everything from government contracts to Regional Development Agencies (RDAs), which provide grants and funding to small businesses across the country, face depleted budgets this year.
It’s not cutting public spending that worries Seonaid MacKenzie, founder of Sturgeon Ventures, an incubator firm that helps start-ups in the financial sector get the correct regulatory licences. She is concerned about the uncertainty surrounding Capital Gains Tax (CGT). So far the government has said that it plans to increase CGT, although it will offer business exemptions, but the detail will not be announced until the emergency budget on 22 June.
“I hope that the government doesn’t penalise people who have started their businesses and grown them rapidly to help the economy, that would be unfair,” says Steve Mahon, the founder of Low Carbon Accelerator, a venture capital firm that invests in clean technology start-ups. The British Venture Capital Association (BVCA) has also warned the government against making hasty decisions that could increase the rate of CGT. But for now entrepreneurs must wait and see. The detail will emerge when the emergency budget is announced on 22 June.
Cuts in RDA budgets might be less problematic, however. Likewise, the process for small companies to win government contracts is lengthy, which is off-putting for many start-ups who just can’t afford the time it takes to win government work. Cuts in budgets that stop them even looking at such contracts might be a blessing in disguise.
Others who already work in areas that are subsidised by government are concerned, though. Mahon does not rule out the prospect that more cuts later this year could have an impact, even though the new government has reiterated its commitment to green energy.
The problem at the moment is uncertainty. Unfortunately, the only game in town is to wait and see. All we know, is that nothing is sacred, and the news is unlikely to be good.