Financial Times – Government policy hits regional small businesses hardest

January 29, 2019

Heavier burden of tax and regulation on devolved areas than on London, FSB finds


Recent UK government policy has imposed a heavier burden on small businesses in Wales, Scotland and Northern Ireland than in London, according to the Federation of Small Businesses.


The federation’s annual assessment of the cost of regulation and tax for small and medium-sized enterprises in the UK found an increase in all devolved regions in 2017 — but a small drop in London.


UK-wide, the average SME faced an annual cost of £481,000, the same as last year, but up by £61,000, or 14.5 per cent, since 2011.


Businesses in Wales (15.2 per cent) and Northern Ireland (14.9 per cent) and Scotland (14.7 per cent) have borne a higher increase in the cost of doing business because of government policy measures analysed in the index. In London the rise was 13.7 per cent.


The annual Impact of Government Policy Index has maintained a record high thanks to rising business rates and government policy in areas such as pensions and insurance. These more than offset reductions in corporation tax.


Researchers at The Centre for Economics and Business Research (Cebr), which compiles the index, said the composition of the economy in the devolved regions accounted for the outsized increase there.


The construction sector has suffered most, with a 28 per cent increase in policy-linked costs, because of rising wages and labour taxes. Manufacturing costs are up a fifth in just two years.


The increase in the minimum wage may also be responsible for some of the impact. Many workers in London were already above the threshold.


Devolved regions already have a dearth of companies. While London has 1,563 businesses per 10,000 people, in Scotland the figure is 735, in Wales 774 and in Northern Ireland 897.


Cebr has compiled the index since 2011 based on the impact of government policy on the average business that is VAT-registered — which requires annual turnover of £80,000. There are 2.6m VAT-registered SMEs — and SME being defined as any business employing fewer than 250 people.


Employment costs have risen sharply since 2011. The minimum hourly pay rate for a member of staff over the age of 25 has risen by 29 per cent in that time. The rate is set to increase by a further 5 per cent in April.


Access the full article here.