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Small firms warned to prepare for public sector cuts

London, UK (04/06/2010)

LONDON (Management Today) Government contracts could actually become even harder for SMEs to get after the Budget.

If you’re one of the lucky ones currently enjoying a Government contract, hold on to your hat – the next few weeks could be a bumpy ride if George Osborne wields the axe in his emergency Budget on June 22. The new coalition has already announced £6.2bn worth of spending cuts, and there are bound to be more in store. Despite its promises to the contrary, that could be bad news for smaller firms...

Undoubtedly, there are tough times ahead – and according to accountancy trade body ICAEW, some sectors are likely to be hit harder than others (the construction sector, in particular, looks set to be heavily affected). Clive Lewis, ICAEW’s head of enterprise, says it’s a good idea for firms to have a contingency plan - so, check paperwork to make sure you’re aware of the penalties for early termination, and use the next few weeks to work out how you can put more of an emphasis on private sector contracts.

But the Budget may not be all bad for SMEs; having featured prominently in the coalition agreement, there’s a good chance businesses will get some good news too. Business minister Mark Prisk used an interview in the Telegraph to explain why he wants to use the opportunity to ‘strip away’ red tape, emphasising the Tory manifesto vow to introduce a new ‘one-in, one-out’ rule for new regulations, as well as vowing to ‘(move) away from tinkering and meddling’. Not exactly a in-depth explanation of his plans, but at least it sounds encouraging.

On the other hand, complaints about the planned rise in Capital Gains Tax are still rumbling. Even though David Cameron has promised to keep the rise to strictly ‘non-business’ gains, critics argue it’s going to be difficult to define exactly what does and doesn’t count as non-business – and even then, investors aren’t exactly going to be encouraged to spend their money. There’s also speculation about a possible a rise in VAT – possibly to as high as 20%, which is unlikely to do wonders for consumer demand.

Given the coalition’s forbidding economic legacy, cuts are unavoidable. So although both the Tory and the Lib Dems have promised to push more public sector contracts in the direction of SMEs, they're likely to be fishing in an ever-shrinking pool.
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