- Drive pension savings into British business: tie pension tax relief to investing in UK assets, as UK pension funds now put only 6% of their money into British businesses, down from 40%.
- Back growing SMEs and family firms: reverse April’s cuts to Business Property Relief, which brought inheritance tax onto business assets above £2.5 million and halved the relief on AIM shares.
- End the ‘tax on ambition’: root-and-branch reform of business rates so firms are not penalised for investing in their premises or taxed before making a profit.
Prosper UK warns today, two days before the Budget, that 94% of SMEs that want to scale up are acquired before they reach maturity, half of them by overseas buyers.
Sir Andy Street, Prosper UK’s co-chair and the former Mayor of the West Midlands, said:
“The UK is good at starting businesses but too often loses them before they can grow. We are not short of entrepreneurs, but too many promising businesses are sold, often overseas, before they get the chance to become major British companies.”
Around 380,000 businesses, including SMEs, want loans or investment to grow but cannot get them, and the UK has had the lowest investment as a share of GDP in the G7 in 24 of the last 30 years.
Prosper UK calls on the Chancellor to act now. The report sets out how to get more capital into growing British businesses, including:
- expanding investor partnerships and innovation accelerators, and backing university spin-outs across the country
- lifting Growth Guarantee Scheme lending to £4 billion a year now rather than £3.35 billion a year the Government plans by 2028/29
Sir Andy added:
“Politicians of every party say they back small businesses, but the owners I meet cannot get a loan and are taxed on their premises before they have sold a thing.
“If the Budget does one thing to help small businesses, it should be to give them the capital to grow.”
Workplace pensions, where most new savings go, now put only 6% of their money into UK-listed companies, down from 40% in 2000, while pension funds in Australia put around 40% into their home market and in Japan almost 50%. The report suggests making tax relief on new contributions conditional on at least 25% going into UK assets, including start-ups, scale-ups and AIM companies, which would put far more pension money behind growing British businesses than the voluntary Mansion House Accord.
Since April, owners of growing SMEs and family firms have faced inheritance tax of up to 20% on business assets above £2.5 million, which can force a family or founder to sell. The relief on shares in AIM, the London Stock Exchange’s market for smaller, growing companies, has also been halved, and AIM has shrunk from 1,694 companies in 2007 to 605 today. Reversing the cuts to Business Property Relief in full would help bring investors back and give growing SMEs more capital to scale.
Business rates add to the problem by taxing businesses on their premises whether or not they make a profit, so one that expands or improves its building pays more. Rates are set to rise by £9.1 billion this Parliament, and more reliefs and thresholds will not fix this ‘tax on ambition’. Prosper UK calls for root-and-branch reform, with a land value tax as a leading option to replace the outdated system.
The report calls on the Government to seize the AI opportunity for small businesses before more of them are left behind, as wider adoption could add more than £42 billion a year to the economy. Prosper UK wants a substantial share of the more than £200 million the Government has set aside for AI adoption to reach small businesses in every region, tied to practical training, with larger companies sharing expertise with SMEs.
Prosper UK also calls for:
- 30-day default payment terms for SMEs and automatic interest on late payments, which force 38 small businesses to close every day
- Renewables Obligation and Feed-in Tariff costs taken off business electricity bills and paid for from carbon pricing revenue
- Employers’ National Insurance contributions halved for workers aged 21 to 24, to help young people into jobs
- a target to cut red tape for SMEs by 40%, with a minister reporting every quarter
The report also covers trade with the EU, public contracts, employment law, retail investment and housing.
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