Which party is best for SMEs?

David Prosser looks at what the party manifestos hold in store for smaller businesses.


Take cover: here comes a promise
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Small- and medium-sized enterprises (SMEs) might be forgiven for wondering whether they've been forgotten during this election campaign. Despite their crucial role in the economy not least as the constituency that accounts for 60% of all private-sector employment policies targeted at smaller businesses have had relatively little airtime.

In part, that reflects the failure of the big political parties to address SMEs' concerns. Of six key policies called for by the Federation of Small Business (FSB), just one has made it into the manifestos both Labour and the Liberal Democrats have said they will guarantee the rights of EU citizens in the UK to stay and work here following Brexit, though the Conservatives aren't matching that. Other key FSB demands legislation that stops bullying from dominant players in the supply chain, for example, or a fully independent inquiry into business rates have been overlooked.

This isn't to say that the manifestos don't include SME-related measures. Tax is one important dividing line. Labour, for example, is ruling out increases to national insurance. The Conservatives haven't said whether they will return to their controversial budget proposal to raise national insurance for the self-employed, but they have dropped previous promises of no increases in national insurance or income tax. There are also differences over corporation tax see below.

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The approach to regulation is also markedly different. Labour plans to give new powers to trade unions, wants to ban zero-hours contracts as part of a wider attack on the so-called "gig economy" and will introduce a minimum wage of £10 an hour by 2020, alongside more generous paternity and childcare rights. The Conservatives, by contrast, have said they will wait for the Taylor Report on labour-market practices before making any changes to the law.

On late payments, the consensus is greater. Labour has promised to prevent any company not making payments to suppliers within 30 days from applying for government contracts; the Conservatives are taking a similar approach, with a ban on government procurement from companies that don't abide by the prompt payment code. The Tories have also promised to source at least a third of all government purchases from SMEs before the end of the next parliament.

SMEs are also set to get more help with skills and training, either under Labour's plans for a new national education service, or the Conservatives' planned expansion of vocational education. Both parties want to see an expansion in apprenticeship numbers and have various proposals for encouraging employers to take on more trainees.

As for the Lib Dems, the party promises a new scheme that could help start-up entrepreneurs with living costs and is calling for new links between entrepreneurs and schools.

How will corporation tax change?

Corporation tax is one huge area of difference between Labour and the Conservatives: while the latter is sticking with its plans to reduce it for all companies to 17% by 2020, Labour wants to reverse the Tories' recent corporation tax cuts, taking the rate back up to 26% to fund education spending and other pledges. Labour also plans to reintroduce a smaller companies rate of corporation tax, though it hasn't said at what level or who would qualify.

SMEs have done relatively poorly on corporation tax in recent years: in 2010, when the coalition government came to power, large companies paid 28% while smaller businesses paid 21%; since then, successive governments have taken nine percentage points off the first rate, but only two off the second, having brought the two regimes together in 2015.

If Labour chose to restore the smaller companies rate at the 20% level of the 2014-2015 year, the last time there were separate charges, the increase from today's 19% would be relatively small, though bigger in comparison to the Tories' target of 17%. The smaller companies rate previously applied to companies with profits below £300,000.

David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.