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Emergency Budget: Osborne needs to help businesses carry on spending

Small and medium sized businesses have been the star performers of the UK economy in recent months. Further improvement is key to economic growth.

GEORGE OSBORNE has pledged a “laser-like focus” on productivity when he presents his emergency Budget. His challenge will be to fill the productivity gap – the UK’s production for each hour worked is currently at about 75% of other countries like the US and Germany.

Small and medium sized businesses have been the star performers of the UK economy in recent months, with figures from The Federation of Small Businesses showing a rise in productivity of 1.4% during the final quarter of last year at a time when the performance by the wider UK economy grew by only 0.3%.

Further improvement is key to economic growth and this can only happen if the government gives British businesses the appropriate support, including the opportunity to develop cutting edge infrastructure in the technology and engineering sectors.

With further austerity measures and £12bn in savings from the welfare bill on the way, it is also important that the deficit reduction plan maintains stability and supports growth, with a focus on capital investment and the development of skills and innovation.

The government needs to look at the skills required not just today, but in ten and 20 years time. Tungsten Corporation has developed technology in accounts payable automation and spend analytics and many of the world’s largest corporations and governments rely on our systems. Like many other British technology companies, we need the government to support the pipeline of talent available to our business.

As our e-invoicing network continues to grow, R&D relief remains critical to our investment decisions. Recent budgets may have seen headline rates increase, but the amount of restrictions have also risen. A pro-business budget should expand the remit of R&D Relief, not decrease it.

In other areas, there have been calls for the Annual Investment Allowance (AIA), to be permanently set at £250,000. This scheme currently allows up to £500,000 of spend on business-related expenses such as machinery, plant or commercial vehicles to be offset against a company’s tax bill, but is due to be reduced to £25,000 at the end of December.

The allowance has been subject to significant fluctuation since 2008 which has inhibited companies from planning long-term capital investment with certainty. Mr Osborne has admitted that this lower level is not “remotely acceptable” and that he intends to reset the figure at a more generous rate, albeit below the current £500,000.

The Confederation of British Industry estimated that a permanent AIA of £250,000 could contribute as much as £1bn to the UK’s GDP by 2020. The hope is that this decision will be made in this week’s Budget rather than delayed until the chancellor’s Autumn Statement in December, as some fear may happen.

Helping more businesses export, and continuation of the reformation of the outdated business rates system are other areas for focus as the UK battles to meet its productivity challenge.

Reforming the business rates system is long overdue and should be founded on a modern property based tax system where businesses face a reduced administrative burden but continue to make valuable contributions to public finances.

Additionally, greater automation of the financial supply chain would meanSMEs spend more time making their products and expanding their businesses and less time chasing invoices or worrying about finance.

The government extended the National Insurance Employment Allowance for the 2015/16 tax year. For small businesses, this has been a very welcome pro-employment initiative and an example of what can be done to support growth and employment. SMEs need to be encouraged to continue to underpin productivity growth. Mid-sized companies employ 4.3 million people and contributed a total of £71bn in taxes last year but I believe that if current barriers to growth are broken down they could add billions of pounds more.

David Williams is chief financial officer at e-invoicing, invoice financing and analytics firm Tungsten Corporation

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