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11th August 1972, Page 52
11th August 1972
Page 52
Page 53
Page 52, 11th August 1972 — management
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Which of the following most accurately describes the problem?

matters by John Darker AM B M

Help for the small business (2)

ROBERT McKINNON'S pamphlet "Small firms and their problems" (Aims of Industry, price 25p) makes a cogent plea to the present and any future Chancellor for even more effective fiscal help to small firms. After commending the Chancellor for the bold stroke of halving selective employment tax, he stresses that the remaining tax continues to nag away at the small business, especially at the tens of thousands of modest enterprises in the services field. Even those firms which qualify for rebates are compelled to give the Government an interest-free loan until repayment some six to 10 weeks later.

Another point of substance is what McKinnon calls "a charge on merit" called for by the Redundancy Payments Act. He rightly stresses that many small firms are noted for the loyalty they inspire — large

firms are not unique for their quota of long service staff. "Because of the Act [small firms] very often have to find considerable sums of pay off employees when, for one reason or another, their services are 'dispensed with."

Capital gains tax

Another complaint is registered against capital gains tax. The author points out that when originally introduced by the Conservatives this tax affected only short-term transactions, but it was extended under Labour to involve theoretical increases in value caused by inflation and to situations, such as gifts between persons, where a theoretical profit could be calculated. These extensions have yet to be cancelled by the present Government, though from April 1973 onward, only three-fifths of the actual gain will be taxed. This, in effect, will make the tax for companies one of 30 per cent.

It appears that the Smaller Businesses Association feels that capital gains tax acts as an "erosion of productive wealth when applied to a private or independent firm" and it believes the tax should operate only after a profit has been made from a specific transaction. Rises in the book value of an asset under the influence of inflation should not be taxed, nor should any asset that has been held for 15 years or more.

The Income Tax Payers Society suggested recently that in view of the effect of inflation on the current value of assets there should be a yearly reduction in the tax rate charged of 5 per cent, "resulting after six years in a cessation of liability". But the Bolton Committee was chary about advocating any sweeping change in its application since this would be a "departure from neutrality between small and large firms which we do not think justifiable at the present time".

Disclosure information The disclosure provisions of the 1967 Companies Act compelled small firms with, an annual turnover of more than £50,000 to disclose information on turnover and profits. Although the present Government has now exempted companies with a turnover of less than £250,000 from the disclosure provisions, many small firms were hoping for the higher limit of £500,000 proposed by Bolton. One of the most valuable suggestiot made by McKinnon concerns the raising I loan capital for development. While th may be no great problem at the momer with banks falling over themselves to ler money to credit-worthy firms, there al grave problems when capital is scarce ar competition for it severe.

Long-term, cheap finance is needed an as one quoted managing director says: "N amount of Government adjustment c depreciation rates, capital allowances, etc. can overcome the fundamental problem a small firm which may be paying as muc as 121 per cent for loan capital."

The margin on many types of us enterprise is simply not sufficient to borra money at this rate and still make reasonable return to the proprietor. Herm expansion is undertaken only where if risks are minimal. Considering that man large public companies are still payin 9i-10 per cent on their loan stock, whil much of British industry makes less than per cent on their overall capital invested, t pay 12 per cent or more means that, in fac there is much watering down of equit capital.

'Mass-produced' loans The author suggests that one solutio would be for banks to set up Small Busines Departments at major branches, wher specially trained staff could handle locg applications for loans expeditiously. Th loans, ranging in amount, say, from £1001 to £15,000, would be repayable over five ti 10 years at 8-10 per cent. It is felt that th banks would be unable to argue that th cost of servicing a small loan was as mud as for a big loan if this type of loan wa "mass produced".

Are small businessmen making too mud fuss about such difficulties? McKinnoi quotes the recent report of the Economist Advisory Grqup which was commissionec to help the Bolton Committee as saying tha small firms fabe two disadvantages whei borrowing money. The first is that the smal firm pays more interest because the cost o the transact* is proportionately greater Secondly, when official ceilings on lendim are in force "the overwhelming weight o evidence is that the ceilings operau differentially against small firms and, it dition, hold back innovation in financial :ilities that would increase the flow of pital to them".

Says McKinnon; "The small businessm and industrialists of this country are y-thing but a group of Poujadists. They ve indeed shown the most remarkable tience in the face of complacency and iorance over their problems on the part of 41 servants and of politicians in both main dies."

lore record keeping Meanwhile, the spectre of value-added lc, to be introduced on April 1, 1973, is ely to impose additional burdens of cord keeping, consultation with profesmal advisers and negotiation with the istoms and Excise. McKinnon thinks ere is a case for setting up an official insultative committee consisting of presentatives of small companies and the ustoms and Excise to keep VAT problems ider review. Similar committees could be tablished to promote liaison with the land Revenue and banking world.

Robert McKinnon reserves much of his orn to denounce the enormous growth in ireaucratic form-filling and questionnaire iswering imposed on industry since 1947. is easy to find small businessmen who row away any such inquiries which are it mandatory. There is widespread feeling at there is no evidence that such statistics .e put to any use; indeed, when published .e information is almost invariably out of ite.

In one study of official inquisitiveness quiries came under four main • categories: hese are: I Inquiries relating to commercial formation of all kinds.

Inquiries by planning authorities.

1 Inquiries by government inspectors of arious kinds: and 1 Visits by officials for no discernible bject, a practice known as "swanning". The Smaller Businesses Association has .ressed that more that 60 authorities have ie power to issue forms demanding iformation. Particularly noxious was a card of Trade requirement in 1969 where census of production return extended to 4 pages, required a tremendous amount of (ork to complete and caused a "ground well of resentment throughout industry". Vhy not make more use of sample returns? ays McKinnon.

iraining boards The pamphlet quotes some predictable riticisms of training boards. Small firms ranted the boards abolished and had little ime for the suggestion of voluntary training ioards. The Smaller Businesses Association, iowever, considered that the main scope for raining in small firms lay in management raining, for which they should contribute owards the cost.

Of course, this pamphlet is largely special 'leading. No Chancellor is likely to divest rimself of the benefits of inflation in axation matters. It remains true that the mall businessman's voice is seldom heard )efore policies which affect him adversely ire made.


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