In our four-part series, we will be delving into all you need to know about the upcoming challenges of economic turmoil, and the potential UK recession if you are an SME.

We’ve already delved into how to prepare for a recession, so please take a look at this if you haven’t done so already.

Within this blog, I will be detailing my take on the UK economy, and what the government and other bodies should be doing to support SMEs during an economic downturn such as a UK recession.

For a little background on myself and why my opinion is worth reading, click here. I am a UK business coach and have helped more than 250 companies become more successful over the past 15 years.

I have close relationships with my business community and understand how business owners feel out there.

The current economic climate

A lot has changed during 2022, with prime ministers and government bodies being elected and then leaving faster than ever before. Added to this extortionate energy price rises, a media frenzy highlighting the potential of a market recession, and the mini-budget u-turn!

Oh, and there is a small matter of a significant war to which our country is financially committed to as well.

All of these factors have led to much uncertainty in the UK and had a significant knock-on effect on businesses which are trying to navigate their way within this challenging and fast-changing economic climate.

Let’s first of all delve into the government’s current (as of 21 October 2022) plans and how this affects SMEs in the UK and a potential UK recession.

Corporation tax changes

1. What is corporation tax?

Let me first of all cover what is corporation tax. This is the tax that limited companies must pay and is calculated against the profit that they make.

Sole traders or partnerships however are classified as self-employed and pay their equivalent tax still based on their business profits but this is paid through their annual self-assessment system.

2. Corporation tax u-turn

Within the mini-budget, in September I was delighted to hear that the chancellor had scrapped the proposed corporate tax increase. With the cost of living and energy prices rising, this would have provided some relief to business owners. It may have potentially allowed them to commit funds to other growth activities.

However, as this has since been revoked, it means that a more challenging time is ahead for SMEs, especially if we do have a UK recession. Inevitably, some will be stretched to breaking point.

How this affects businesses:

By the government choosing to make a U-turn on lowering corporation tax, SME business owners will now not only have to live on less, but they will have to make substantially more just to catch up. This means many businesses will not be able to hire more employees but rather pick up the slack themselves. It may even result in some redundancies to protect the income of the business owners.

Changes to their business’s costs, adapting their business offering and receiving the training and guidance to make these changes to their business plans will all be important. Without this, the changes to costs and taxes will be unmanageable for many.

Redistributing and investing money back into the development of the business, or bringing in new staff members will no longer be possible for many businesses. This will further hinder growth opportunities.

Increasing corporation tax means it becomes harder for businesses to grow and provide economic benefits to the communities they support. This can include employment opportunities as well as wealth for owners to be able to spend within the economy. I believe this decision (for SMEs at least) is counter-productive to the wider aim of growth. As well as damaging to SME business owners personally and professionally.

High earner’s tax rate cut cancelled

I personally am very pleased to see that the government made a U-turn on cutting higher earners’ tax rates. This means those earning over £150,000 will still have the pay a 45% tax rate level.

I understand you may not agree with this, but the government’s justification for cutting this tax was that they believed the money not spent on taxes would trickle down to lower earners in the economic spheres of society. This is known as trickle-down economics and I simply do not believe it works without further legislation to insist that the tax savings made would be definitively re-distributed into growth programmes.

Without that control, I believe the majority would simply end up either bolstering trust funds, offshore accounts, investments etc. This would therefore not benefit society in the ‘intended’ way.

The national insurance rise reversal

I am also personally pleased to see that the government has also chosen to reverse the rise of the national insurance level. From my perspective as a business owner, it was in effect a 1.25% cost rise for employee wages which would have had no benefit to my employees directly and an additional cost to bear as a business owner.

While I understand the context of rising national insurance, as a business owner with other expenses rising, this would have been a pain for most SME owners. The maintenance of this reversal is certainly helpful given the forthcoming increase to corporation tax.

How to help businesses during the UK recession

The ability to help businesses survive a UK recession and fight is something I am passionate about as an individual and the other coaches in my team.

I understand the pain and suffering business failure brings and want to avoid as much of that happening as possible. Added to this I want to make the business of being an SME business owner a more satisfying experience.

Whilst I can have a direct influence on a few clients, there are some wider-ranging initiatives that I believe the government and other bodies could undertake for the masses.

Governance of start-ups

I believe that start-ups should have greater governance and support at the start-up stage. This is because there are far too many businesses that have been lent far too much money without actually having a proper and decent business plan. Governing this viability issue more strongly, and offering greater advice at an earlier stage would prevent a lot of businesses from going under early on.

Supporting affordable business coaching, training, mentorship and more

I personally believe at a government level there should be supported education for business owners. This could come in the form of vouchers or grants that can be redeemed for small business coaching and training. This surely would then create a stronger chance of success and greater resilience for those undertaking that learning.

Business coaches, for example, who offer support could receive a subsidy from the government to either partly or fully cover their costs. Not only would more SME businesses succeed, but it would also support the education and coaching sector too – one of the fastest-growing sectors.

Setting up learning and development hubs

I understand that banks, chambers of commerce, The Federation of Small Businesses and networking events often provide learning hubs for businesses where they can further their knowledge about important topics. But this opportunity, unfortunately, does not reach all business owners, and many miss out on invaluable training and development opportunities.

My question is “why are these services not offered or supported to a greater extent by the government when they encourage economic growth?”

Learning hubs set up by the government would provide approved training and development. This would offer business owners the best advice to allow them to thrive.

What you can do as an SME

Business ownership is different to being good at your job.

To be a really good business owner, you need to be resilient and capable in challenging circumstances, such as during a UK recession. You need to bolster your knowledge and capabilities and access the wisdom and lived experiences of the various advisors around you.

Don’t focus on what others are doing, focus on what you need to do to survive and flourish.

UK Growth Coach

If you would like some advice and guidance to build your knowledge and thrive during the UK recession, then please do not hesitate to contact me.

My telephone number is +44 (0)1444 440500, or alternatively please email me at tim@growthcoach.co.uk, or visit our website to find out more information. I look forward to hearing from you and to providing you with the essential knowledge and skills you need to succeed.