The Small Business Round-up: September 23

This month we will be examining what FSB would like to see the government do to encourage greater adoption of tech and innovation among small businesses – and FSB’s wishlist when it comes to government support for the tourism, hospitality and retail sectors in the lead up to Christmas. We also discuss the expansion of ULEZ – or the Ultra Low Emission Zone – and why that will have an impact on businesses everywhere, not just in London.

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Jon Watkins Welcome to this latest FSB Monthly Round-up podcast, the go-to podcast for news, tips and important information for small businesses and self employed. This episode is our September 2023 Small Business Round-up, in which we'll take a look at some of the important issues hitting the headlines at the moment, and which you need to be aware of as small business owners. This month we'll be diving into three topics that are particularly pertinent to small businesses right now. To begin, Yupina Ng, FSB's Media and Communications Lead on innovation, Yupina's going to talk to us about what FSB would like to see the government do to encourage greater adoption of tech and innovation among small businesses and the impact that could have on the economy. Anna Slater, FSB's UK Deputy Head of Media and Communications is then going to chat to us about FSB's wishlist when it comes to government support for the tourism, hospitality and retail sectors. In the lead up to Christmas, Matt Jaffa, FSB's Senior External Affairs Manager for London is going to talk us through the expansion of ULEZ, the Ultra Low Emission Zone and why that will have an impact on businesses everywhere, not just in London. Thank you all for joining me. Yupina, we're going to start with you. The first thing we're going to look at in this episode is the call from FSB for the government to unleash investment in tech adoption and innovation to help small businesses kickstart economic growth. What exactly is this about? What do we mean by unleashing investment in tech adoption and innovation?

Yupina Ng Thanks for having me. When we talk about innovation, there seems to be a misconception that innovation always equates to invention. And it's only about the tech industry. While developing new products is definitely one of them and part of the innovation landscape, it's not the only thing about innovation, and we need to take a broader look to capture the economic potential behind, meaning that value needs to be placed on firms to improve their products successfully using technology or modernising their manufacturing processes. Innovation doesn't have to take place in a lab or in a university. In fact, when we look back during COVID, plenty of small firms and High Street businesses have innovated and used technology to modernise their operations. Think about the QR code menus adopted by local restaurants during the pandemic or the small manufacturer that brought in an automatic bottling machine to bottle more drinks. For example, in our latest report on small business, tech adoption and innovation, we talked to over 1000 of small businesses across the country. And many of them told us they want to keep innovating and modernising their business. And don't forget, a lot of these innovative and tech savvy small firms have lower margins and fewer resources than large corporates. But they're still very keen to bring in new ideas to drive our economic growth. But they need the support to take their ideas to the next level, and we need a new set of new policies to achieve that. So after talking to a lot of small firms, we put forward a list of recommendations through our report titled: The Tech Tonic, for government departments, regulators, public agencies, and have those with a stake in tech adoption and innovation and how they can drive economic growth.

Jon Watkins Brilliant. Thanks. And you mentioned the research that underpins the report. What exactly were the findings of that research you've been and what did we learn?

Yupina Ng So we talked to over 1000 of small firms across the UK, and seven in 10 of them have introduced a new form of innovation in the last three years. This includes the development of an entirely new product to the market, or significantly improved existing or new products, and some of them they introduce innovation by making staff and customer experience better. Small firms with new and improved product sales. Increased turnover, or profit is the main driver for change. And some of them say they want to change because they want to diversify their business. Those that have introduced new or enhanced staff or customer-facing processes are mostly motivated by the need to increase business resilience, or just a need to automate. The average costs of introducing any types of innovation over a three year period is about 27,000 pounds for a small firm, and the changes on average increase revenue by around 15%. But despite the fact the majority of small firms have innovated and modernised, they're still facing a lot of barriers. Two-fifths of small business owners say they don't have the time to develop new ideas, or adopt technologies to innovate their business. And close to a third, identify affordability as a barrier. And another 17% feel that they lacked the knowledge to just implement the changes.

Jon Watkins Okay, and what is it the FSB wants the government to do to help with this?

Yupina Ng So since April this year, there has been cuts to the R&D tax relief scheme for SMEs. This scheme had been really successful in encouraging startups and new ideas. We are really disappointed that the cuts have happened. In the past year business support and fundings for SMEs in the innovation landscape have been cut as well. We see the scrapping of the Help to Grow digital scheme, and the downscaled support for growth hubs. Half of small firms we talked to say additional government grants will encourage them to innovate. And 46% say extra tax relief would do so. And there should be non financial incentives, as well, as we mentioned that just now that small firms also lacked in know how to innovate with in our report around a third one help with implementation, and more than a quarter I want better information and advice. And a similar proportion of firms say they need more skilled staff to make the change happen.

Jon Watkins Okay, brilliant. And just finally, what are the specific steps that you're calling for in the report?

Yupina Ng So we'll put together a list of recommendations. But just to name a few: We want the UK government to spend the equivalent of at least 10% of the overall research and development budget on the diffusion and adoption of innovation. And also set itself a target that at least half of all direct government R&D funding goes to SMEs. And in terms of our recommendation to the Treasury, we want a modernization and diversification tax relief scheme based on R&D tax relief, providing small business tax relief for those who have invested in significantly improving products or processes. We also have a recommendation for the department for science, innovation and technology. We want them to introduce digital audit vouchers for small businesses, to enable more small firms to effectively use data and technology.

Jon Watkins Thank you. That's really useful, really insightful. Thanks for listing out those practical tips that we're calling on government for as well. Our second topic in this month's round up is FSB's tinsel list, a list of things FSB wants the government to do to support the tourism, hospitality and retail sectors in the run up to the important Christmas season. Anna, you're here to chat us through that. Welcome back. It's good to have you with us again.

Anna Slater Hi, Jon.

Jon Watkins Good to have you. Good to have you, Anna. I guess the first thing to cover off here is that it's early September, and we're already talking about Christmas. What's the deal there?

Anna Slater Yes, I mean, I agree. You know, it does feel a bit strange to be talking about Christmas when most of us are still nursing our sunburn from the early September heatwave that we had. But that said, it is so important to recognise just how crucial the Christmas season actually is for the survival of so many of our small businesses, you know, they they really rely on the holiday season and the earlier we can voice our concerns, then the more time the government has to actually put these measures in place.

Jon Watkins Why do they need specific help, firms in these sectors? I mean, it Christmas is pretty busy time for them. Anyway, so why they needed this help right now?

Anna Slater Sure. So I think we need to look back at the data from earlier this year and those figures that we've got are so compelling. And so if we delve into our latest Small Business Index, for example, the latest findings offer a really striking snapshot of where consumer facing businesses actually stand in the middle of this cost of living crisis. So when we look at businesses in the retail sector, the confidence reading is alarmingly low. And you know, we're not talking small numbers here we're talking a score of -38 points. And it isn't much better in the accommodation and food sectors either. You know that they're clocking in at -36 points. Now, just to put that into perspective for you, they're usually the sectors that are bustling with activity, especially as we head into certain sectors like Christmas.

Jon Watkins And I think, you know, there are some actions you're calling on the government to take to help firms seize the opportunities of this festive period, what are some of those?

Anna Slater Sure. So first on the list is the accessibility of our high streets, they need to be easy to get to. Parking is such a huge deal. If you've ever driven to a high street and you spent half an hour actually looking for a parking space, you're going to know exactly what he should have. And that is why things like park and ride services need to be readily accessible. And public transport also, it needs to be reliable, it needs to be affordable. And most importantly, it needs to be well connected. And while we're on that subject, buses and trains need to do better, and they need to be on time, they can't be too expensive, and they actually need to go where we need them to go. So second on our list is the VAT threshold. So as it stands, it that's currently set at £85,000. But what that actually means in real terms is that a lot of businesses taper off their trading as the tax year comes to a close. And that's just to avoid going over that limit, because then they'll get hit with extra costs. So one idea is to bump that up to 100,000 pounds, because not only would that give businesses a little bit more breathing room, but it could also really stimulate more consistent business activities throughout the year. And that's good for everyone involved. And then a third suggestion, last but not least, is business rates. It's so important to talk about small business rates relief, because the current threshold really is just such a financial hurdle for so many small businesses. And an increase to 25,000 pounds could exempt approximately 200,000 small businesses from these rates. And that would really lessen their financial burden and allow for more robust operations throughout the year.

Jon Watkins Yeah, there's some real specific requests there that as you say, could make a real difference to small businesses. Are there other steps that you would like to see taken, given the current overall business climate that we have, you know, with increasing costs, and, you know, everybody's talking about energy all the time still, and all of those those bigger issues in mind are there other steps you'd like to see taken?

Anna Slater Yeah, I mean, absolutely. And so let's talk directly to energy companies for a second. We know that energy costs are serious line item for small businesses. And so our proposal is to allow firms to blend and extend their contracts. Now, what that actually means is allowing those who had to lock their contracts in when energy prices were sky high, to be able to allow them to renegotiate, which means that they could take advantage of the kind of lower prices that we're seeing at the moment. And at the end of the day, you know, this benefits everyone, because lower energy bills allows firms to keep their prices low for consumers. And then consumers will pass that on to other small businesses. So it's a win win for everyone. And another real step that we'd like to see the government take is to make tax free shopping for international visitors. Bringing that back, it's not just a nice perk for tourists, that really is going to bring, you know serious economic stimulation. Our estimates show that it could add £4 billion to GDP. And that's not small change. It's not just pocket change. That's, you know, that's going to make a real difference. And this impacts retail, it boosts tourism, it stimulates secondary spending, and it will even help small producers. And of course, we can't overlook the optics here. Reinstating tax free shopping sends out such a strong message that the UK is open for business, not just for the festive season. But beyond that as well.

Jon Watkins Thanks, Anna. That's really interesting. And let's hope the government delivers on those requests to in turn deliver a great festive period for small businesses across those sectors. Our third topic for this episode is one that has been all over the headlines in London and Greater London these last few weeks, but as we will hear isn't something that impacts just the capital. And that's the issue of the Ultra Low Emission Zone or ULEZ. Matt, you're here to give us the lowdown on ULEZ. Let's start with what it is, why it exists and why it's been expanded, if you don't mind.

Matthew Jaffa Yeah, thanks, John. So the ULEZ was brought in middle of last decade. It was originally the central London part of the capital in terms of trying to tackle London's poor air quality it got moved in early this early decade to the North South Circular of London and now as of last week, it is in the full M25. So for all London boroughs are covered by the ULEZ. And so in short term it is a case that if you've got a Vehicle a diesel vehicle that is registered pre 2015, or a petrol vehicle registered before 2006, you are pretty much liable to pay the £12.50 ULEZ charge and that has massive implications not just for London businesses, but also businesses outside the capitol as well who may be not aware of it. But this expansion is in place now. And businesses need to recognise this and where possible make mitigations but FSB has been calling for mitigations, as has made some vast policy wins over the last 12-18 months to kind of mitigate the impacts on small businesses through scrappage, through periods of grace and other measures as well.

Jon Watkins Yeah, and you mentioned that £12.50 charge, which applies I think, every time one of those vehicles goes into into that zone. So that's an obvious massive impact on a lot of small businesses. But what other impact is it having on small firms Matt?

Matthew Jaffa Well, it's just simply a case that if you've got employees who maybe you take Heathrow or Chessington World of Adventures, as an example, if you've got employees coming from outside the zone, across the M25, you're not going to pay that charge for your employees, your employees can't afford to pay, you've got a cost of living crisis, you've got a cost of doing business crisis. So it's extremely difficult to be able to manage these costs at this time. And we've we've laboured this point to them, and had some of the serious conversations with them and TfL as well, that the office is that they need to recognise the fact that a lot of businesses won't be able to afford this. So that soft launch that you're not going heavy hand at this time is critical. There are some some good welcome news, we have the back end of last year, we got some clarification from HMRC that if you do enter the zone, from outside London or anywhere in London, you're paying that 12 pound 50 charge, you can use that if it's for a wholly for business use, you can claim that as an allowable expense on your self assessment tax returns. That's some welcome news that FSB was calling for. And we got some good news there. As I say scrappage is available retrofit, we've been calling for these measures, and it's been bumped up and includes small businesses. So particularly your London Business, look at that look at TFL to be able to find that scrappage Load grants available there that can be up to anything up to about £7-9,000 pounds. But if you're in the outer London areas, it's very important, you're aware that this zone is in place. And if you're coming from all parts of the UK, it is in place and don't get caught out.

Jon Watkins Yeah. And we mentioned that it impacts businesses outside London as well. I'm guessing that we're talking there about firms that are coming into the zone from outside, are there other ways it's impacting businesses outside of London?

Matthew Jaffa I think it's a case of you're doing business, a lot of businesses will surf from outside the capital, they'll turn London and they'll be starting to ask themselves questions. If you're living in Hertfordshire, sorry, anywhere in the outskirts, or even as far as you know, Birmingham, Scotland, or you do business once a couple of times a week in London, you're going to think about every business journey you make. And that has an implication of do you pass that on to your customers at a cost of living crisis that many won't be able to many will be able to maybe just absorb the cost themselves? Or do you simply say, You know what, I'm going to serve outside the M25. And that has implications on London as a capital, we need to be open for business. And if businesses are making those decisions, not to serve London, that has knock on effects, it impacts on the ability to do business, to get your whether it be employees or your customers, the number of covers you have in a you know, restaurant or a hospitality business. It has knock on effect, and we have to recognise that fact.

Jon Watkins Just finally, on this one Matt. What else would you like to see from government? You mentioned a couple of wins already there. What else would you like to see from them to help small businesses counter this, this charge?

Matthew Jaffa Well, the schemes in place you can't get scrappage or retrofit grants if you live outside the M25. And so whilst it's welcomed that the mayor has included London businesses to get the grants, it would be it would be nice if the government would provide funding as well for those outer London areas like other parts of the country that could also get some form of scrappage. We don't want to see those businesses outside suffering too much. But as I say, it's important that a lot of businesses coming from outside London won't know about this, this there's still going to be an element of inertia and that they won't know about the zone and won't know about the charges. So a soft launch and not going heavy handed, should be the right approach in the first year. We'd like to have seen that delayed in terms of the charging element till September 2024. That's not happened but giving letters soft launches at this time and making businesses aware that they would have been charged in the first instance give me that period of grace should be the way forward at this at this time.

Jon Watkins Yes thanks, Matt. Some food for thought there. That was great. And that brings us to the end of this monthly round up looking at the big issues affecting small businesses in the headlines right now. out and I'd like to say thanks again to all our guests Anna, Yupina and Matt, for their contributions. Thank you guys. Thank you also to our audience for listening to this episode. While I have your attention, I would just like to remind you that you can subscribe to the FSB podcast to receive regular updates and guidance on the big issues affecting small businesses. And do please also remember that you can find a whole host of additional webinars, podcasts and other content at the FSB website at fsb.org.uk Many thanks.