Posted by: Fonte Dei Marmi | March 23, 2011

The budget impact on FDM

The Chancellor has now gone for a well-earned break from the despatch box, his colleagues and members of the coalition are busily bouncing around the various TV and radio stations extolling the virtues of his words, and members of the Opposition are not far behind them, advising the country just how dire everything is and how they would do it all better.

Leaving party allegiances aside for the moment, let’s focus on the words that were used and how that would affect Fonte dei Marmi, the bathroom industry and potentially industry in general throughout the UK.

The Chancellor used on numerous occasions throughout the speech – three times if my memory serves – a phrase implying that the UK should be the best country within Europe to “set up, finance, and grow” a business. So, did the budget actually make that any more likely? Let’s take a look …

We’ll not dive into every single part of every single policy that was mentioned; I’ll leave that to the BBC and Sky today and the newspapers tomorrow. What we can dive into though are the fundamentals:

The basics of any business are pretty simple: get money in by selling products and/or services, spend money on the cost of providing that/those products and/or services to the client, and if all goes well, keep the difference between the two numbers as profit. The one thread that runs through each of those aspects (as well as many others) is tax. That’s what the budget is about … how much the Exchequer needs, and who pays it. So, here we go:

Getting money in

A business must get money in through the front door otherwise it not a business, it is a building open to the public. So, we have to turn our attention to the disposable income for people. In summary, the answer is not brilliant actually. Growth forecasts have been revised down for 2011, and surprisingly, were revised down for 2012 as well. It bodes well for 2013 and beyond, but for now, not great. It means that people will have less money in their pocket because there will be less money around in general.

If we also consider where much of the money comes for our business – employees in the city and other big business it is better balanced than it would be for those of us in non-finance industries, but it is still slightly negative. Tax has been increased on the banks – by way of the continuing levy – and potentially on oil companies by way of the fuel stabiliser. To counteract that, big business costs are reduced by simpler tax rules and lower corporation tax.

To summarise: if your customers work for big businesses you should be OK; spending will be down a bit, but not much. If your clients are from other business sectors, expect a slowdown in spending.

For FDM: could have been worse, but it could have been a lot better.

Costs of doing business

The biggest cost for FDM, which is normal for a small business, is the cost of supply of the product we sell. On that front, things today have been a bit volatile as most of the products we sell are from Europe originally, and frankly, every word uttered by the Chancellor was making the Pound tank further, raising the cost of purchasing products from the Eurozone. At the time of writing this, the Pound has recovered slightly to regain about half of what it lost during the speech.

As the day pans out, the Pound will probably recover as it dived based on the reduced growth forecast. The net result of this is that the price of purchasing products will be marginally higher, but not much. It would almost certainly have been factored in by suppliers in their original pricing. So, not too bad.

When it comes to the other costs of doing business, we seem to be much better off:

Changes to tax rules will certainly make things easier come the end of the next financial year. That will make a minor difference when it comes paying the accountant next spring. The big piece of good news for us is the cut in Corporation tax: there was an expected cut of 1% which has been upped to 2% for the next financial year, with additional 1% cuts per year for the following three years. Happy days. If we are able to turn a profit, and let’s face it, if we don’t then there is no point being in business, we will be able to keep more of that profit in the company.

The reduction in fuel duty is of course welcome, but it doesn’t amount to very much for a business like ours. Of course it is also helpful that the fuel price wasn’t hiked up by 5p today. The fuel stabiliser, although announced today, really has very little meat on the bone at the moment and that could still come back at a later time to bite us all in the bum.

For FDM: Very happy here

Staffing

Aside from the potential merger of tax and NI, and pension changes etc., a very encouraging move announced today, and one that FDM specifically will be looking at in some depth, is the huge increase of apprenticeships. Apprenticeships in my view have always been the best way of getting school-leavers into work, and to expand the scheme to the degree announced is probably the most useful announcement of the afternoon. Of course there are details to be looked into, and the devil in there found, on the face of it: good move, George.

For FDM: Pretty happy, and something we will be looking at in detail

Raising capital

Every company needs capital from time to time; whether that is just a stop-gap measure or something that is longer term for growth, the banks need to step in and be able to help. Since the economy imploded in 2008, bank funding has been right up there with hen’s teeth in terms of availability but once again the Chancellor promised that more banks would make more funds available. A 15% increase specifically. Obviously a welcome move … in principle. Sadly, it is dependant on the banks to enact this promise and despite the fact that some of them are owned in large part by the tax-payer, they are generally not too happy about lending their money out. Finger’s crossed that they change their mind, but holding ones breath for it to happen may prove detrimental to ones health and wellbeing.

For FDM: No changes.

Interesting possibilities

There were a couple of very interesting carrots dangled in the one hour monologue from Mr Osborne today, and there are a couple that stand out from the general din:

1. The possibility that tax and NI contributions will be merged into a single tax. This will make the payroll administration much easier for a small but growing business. Anything that reduces the administrative headache is always going to be welcomed. There is no information at the moment as to how these changes – if indeed they materialise – will impact the employer’s NI contributions, but for the time being, it deserves the benefit of the doubt until there is more information available.

2. Enterprise zones: for those companies  (like FDM) who are looking to expand the company over the coming years, the proposed Enterprise Zones with their effectively zero-rated business rates and other benefits have certainly piqued our interest. The locations of the proposed sites are pretty well geographically diverse which is helpful for companies looking to get UK-wide coverage, and there is even one proposed for London. Over to Mr Johnson there to give us the details.

In summary

As is the case with every budget, it was a juggling act by the Chancellor, and this year more than most when there was absolutely no money to play with. That said, for a budget hailed as being business-friendly and standing behind business, one must conclude that a cautiously optimistic stance is the most sensible outcome.

Provided people out there have the disposable income to spend, then the changes proposed for running a business on a day-to-day basis could work very well, if not for everyone, but certainly for us at FDM.

Perhaps this time next year, we’ll take a look back and which, if any, of the proposals have been implements and which, if any, have made life better.

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