Yesterday in the pre budget report the Chancellor of the Exchequer, Alistair Darling announced a number of measures designed to stimulate the economy and help SMEs through the financial crisis. The measures include:

• Bringing forward £3Bn worth of capital investment by the Government, this should help inject so cash into the economy and create some jobs.
• A new 45% income tax rate for those earning over £150,000 per year, which won’t really affect many small businesses or start-ups.
• Increasing the £120 rebate to £145 for those who loose out as a result of the removal of the 10% tax bad, hmm still trying to sort out that screw up that they made in the last budget.
• Increasing national insurance contributions by 0.5% for employees and employers – somehow the Labour government thinks we’re fooled into thinking this isn’t a tax increase…
• Extending empty property relief.
• Deferring the rise in corporation tax from 21p to 22p.
• Allowing businesses to spread out their payment of VAT and other taxes to ease cash flow.
• Allowing businesses to offset losses against the past three years, up to £50,000.
• A deal with the European Investment Bank to provide money to fund loans to SMEs.
• Decreasing VAT from 17.5% to 15%.

He also increased taxes on fuel, which may impact some SMEs, however with fuel prices having fallen significantly from the highs over the summer hopefully they will be able to absorb the additional costs.

The big stimulus for the economy is clearly intended to be the reduction in VAT, however dropping VAT by 2.5% would result in a decrease of 2.25% on retail prices, if it is passed on to shoppers, which means something that previous cost £9.99 should now cost £9.77. However lets be honest are retailers really going to change ALL their prices from established price points like £9.99 or will they simply treat the reduction as a 2.25% increase in their profit margins (which probably translates to a 20-30% increase in their overall profits)?

Rachel Elnaugh thinks it’s a badly though out move, saying:

Firstly, retailers can’t even shift the stuff on 20% off super duper mega discount splurge days.

Secondly, has anyone in the Government ever had any experience actually running a business? If so they would realise that the administrative cost – not to mention the sheer hassle – of changing all their prices (including the cost of re-printing catalogues and menus etc) is an absolute nightmare.

Business Zone also reports a negative reaction from small business owners:

It’s a complete an utter waste of time and will cost the UK economy more in wasted man hours than it will produce in outputs.

I agree with both, so I suspect prices on the high street won’t change, however you could argue that if the retailers make more profit they’re less likely to shutdown or lay off staff and their increased profits will help steady the economy – but that’ll be in the long run, not now when we need it.

So what’s your reaction to the pre-budget report?

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