With a New Year upon us, Ian Ross of Vantis, a leading UK accounting, tax and business recovery and advisory group, reviews the effectiveness of four government initiatives that were introduced to help ease the recessionary pain in 2009 and stimulate the recovery. Rating their effectiveness, Ian also considers what 2010 may have in store for businesses.
HMRC helpline - delaying tax payments
At the end of 2008, HM Revenue & Customs (HMRC) set up the Business Payment Support Service (BPSS) to assist struggling businesses. This offered help to businesses that were finding it hard to meet their tax bills due to cashflow difficulties. By the end of September 2009, more than 200,000 arrangements had been set up and £3.7bn of cash payments delayed.
In the main, HMRC’s support was there for those who requested it. This proved a vital form of credit for businesses when many other sources had dried up. Anecdotal evidence from insolvency professionals suggests the BPSS has kept many businesses from administration; time will tell whether this has genuinely saved businesses or just delayed the inevitable for some.
In December’s Pre-Budget Report (PBR), the BPSS was extended. This will give more businesses time to pay their outstanding taxes throughout 2010.
Vantis score: 7/10
Enterprise Finance Guarantee Scheme
The Enterprise Finance Guarantee Scheme (EFGS) was introduced as a flagship lending plan for SMEs in mid-January 2009. It represented an expansion of the Small Loans Guarantee Scheme (SLGS), under which, in return for a fee, the government encouraged banks to lend to SMEs, by guaranteeing the loan.
It is fair to say that, however complicated and hastily announced, the scheme was effective in its purpose. The EFGS proved to be the most effective of the schemes introduced by the government in 2009 to get banks lending again. However, confusion around personal guarantees and the limit on what a 75% guarantee actually means, reduced the impact.
The Chancellor recently made his support for the scheme clear, by extending it so that small firms will be able to access another £500 million of credit in 2010.
Vantis score: 5/10
VAT reduction to 15%
In the PBR in November 2008, the Chancellor announced that the standard rate of VAT would be reduced to 15% on 1 December 2008 and would revert back to 17.5% in January 2010.
Many business owners complained that the costs of implementing these changes outweighed any benefits they enjoyed. However, it was estimated that the average consumer would save around £170 a year* and, although the savings may have only been marginal during each transaction, the benefit on the consumer was cumulative.
Furthermore, consumers and organisations not able to recover VAT were expected to have brought forward spending to beat the New Year 2.5% increase. Indeed, recently announced retail sales figures for Christmas did show a slight surge in ‘bigger ticket’ items, indicating that this may well have been the case.
This initiative was estimated to cost the government £12bn in lost VAT, and the changes proved difficult and expensive for businesses to implement. As a mechanism to stimulate consumer spending, it proved to be a relatively blunt tool. The effects were small and the cumulative benefit difficult to measure.
Vantis score: 3/10
Car scrappage scheme
There were many commentators happy to condemn the scrappage scheme before it had started. However, the prospect of receiving £2,000 for scrapping a ten-year-old car pulled in the punters. Car dealers reported a surge in interest and, arguably, an industry that was on its knees was given the helping hand it needed.
The cost has been shared between the Government and the car industry. In September 2009, the government announced a further £100m for the scheme, bringing the total to £400m. Some expect the money to run out early in 2010, but the industry is calling for the scheme to be extended.
Vantis score: 8/10
Ian Ross is the Location Director at Vantis in Epsom. With over 25 years of experience, Ian is used to helping clients with many aspects of running their businesses successfully.
*Based on the Government’s estimation that a worker on £25,000 a year who spends £8,000 on goods and services would save £170-£200 a year.