As Brian Green points out in his column on drumming up work, the government has pretty much kept the industry in business during the recession. About 40% of construction work undertaken in Britain is bought by the taxpayer, compared with 31% in the days when Northern Rock was just a bank with an innovative business model.
Unfortunately, while it saves the industry’s life, the state is also picking its pockets. HM Revenue and Customs is being leaned on by the Treasury to make up a £41bn fall in the government’s tax take. Ironically, these measures look likely to mow down many
of the survivors.
Construction output, which dropped 11% last year, is forecast to drop another 2% in 2010. What clients there are are taking longer to pay and banks are reluctant to hand out bridging loans. The result is that a hike in National Insurance contributions and a rejection by the Time to Pay scheme may be what David Westwood, the Essex builder interviewed for the article, says is a “killer blow”.
The final irony is that HMRC is the creditor most likely to pay the £1,500 needed to issue a winding-up petition – secure in the knowledge that it will be the first to dine on the resulting carcass.
All in all, HMRC’s measures amount to an onslaught on small firms. On top of the 1.5% hike in employers’ NI contributions, anyone who pays their CIS or PAYE payments late will be slapped with fines starting at 1% of the debt, rapidly climbing to 4%. Firms must also get to grips with filing their returns online or face more fines. Pretty soon, they can find their tax bill has gone up an eye-watering 10%. To add insult to injury, the Time to Pay scheme, which was brought in a year ago to take some of the sting out of tax deadlines, is becoming tougher and some suspect may be scrapped altogether. Then there is the threat of VAT rising to 20%, which looks likely to do what the drop to 15% didn’t: make a real difference.
Meanwhile, a National Federation of Builders survey shows that 79% of small firms are finding it harder to win public sector work as it is bundled into large packages and let on frameworks that naturally favour national contractors.
Of course, the government must raise money, but squeezing SMEs for this will lead to more redundancies and insolvencies, which means fewer taxpayers and more signers-on – last week we reported that a third of small firms are thinking about cutting jobs, even before HMRC’s campaign gets into gear. So, for everyone’s sake, including its own, the government should give these businesses a break.