Conservatives and the Democratic Unionist Party - What Does This Mean for SMEs?

It's fair to say that this wasn't the outcome predicted by most commentators several weeks ago! The 8 June election proved to be much closer than predicted, leaving the Conservatives without their assumed majority.

Mrs May has not been given a clear mandate for the next 5 years, and even with the support of the DUP now secured, other than that which featured in the Queen's speech on 21 June, there remains some uncertainty around what pledges from the Conservatives' manifesto will feature on their agenda over this next parliament. We have picked out here some areas of the Conservative manifesto that seem likely to remain on the Government's agenda over the coming years.

In this blog:

• Brexit
• International Trade
• What's Definitely on the Domestic Agenda?
• What Could Feature on the Domestic Agenda?
• Timeframe for Implementation?
• Questions?

Brexit

If anything, the shape of Brexit is now even less clear than it was before the election with the debate between a 'hard' and 'soft' Brexit (whatever you take those terms to mean) seemingly intensifying. If rumours in the press are to be believed there is conflict between the Chancellor and the various ministers with Brexit-related mandates.

The official line seems to suggest that not much has changed from the Brexit world that we were in a couple of months ago. We are still expecting to leave the single market and see an end to free movement - on terms negotiated by a Conservative government - just as we were in March. There is a bit more clarity around the rights of EU citizens living in the UK, but in most other respects it is still very much a case of waiting to see.

What is clear though is that Brexit continues to loom large, and is likely to soak up a lot of the attention of the government over the next couple of years.

International Trade

Related to Brexit, as we leave the EU we will need to agree new WTO trade schedules (which set out the minutiae of our tariff arrangements for imports and exports to and from the UK). We will cease to access EU WTO schedules, so will need our own schedules in place.

The Conservative proposal is to lodge schedules which are consistent with the existing EU WTO schedules. Of course, they will need to be agreed (and where there are existing EU-negotiated free trade agreements, the position will be more complicated) but the Government's intention is that our trading arrangements with non-EU countries post-Brexit should be just the same as it is now.

What's Definitely on the Domestic Agenda?

• Infrastructure and projects - high speed rail. Automated and electric vehicles. The space industry. Smart metres. These all featured in the Queen's speech under the Government's plans to build a stronger economy.
  
  
• Workers' rights - the government has pledged that the national minimum wage will be increased to 60 percent of median wages by 2020, and then by the rate of median earnings. This is not a new policy, but it is re-iterated in the Conservative manifesto, and is worth repeating here. The current National Living Wage of £7.50 per hour is calculated at 55% of median wages, so calculated at today's rates this would involve an increase in the National Living Wage to £8.20 per hour by the end of the Parliament.
  
  
• The 'Gig Economy' - in a continuation of their proposals before the election, the Conservatives have also expressed a commitment to ensure that people working in the 'gig economy' are properly protected. However, we will have to wait for Matthew Taylor’s government-commissioned report on the changing labour market to see what the details of this are likely to be.

What Could Feature on the Domestic Agenda?

The Conservative manifesto contained objectives for supporting SMEs, which included:

• A cut of corporation tax to 17% (from its current level of 19%) by 2020 - our understanding is that this remains on the agenda.
  
  
• A new business rates system, in particular, more frequent revaluations to avoid large changes to the bills that businesses face - although if implemented, the consequence is likely to also be more frequent increases in business rates
  
  
• A simplified tax system to make it easier for small businesses to assess their taxes - but it's not clear what shape that may take (or whether that simplification will ease the tax burden on businesses)
  
  
• Ensuring that 33% of Central Government purchasing will come from SMEs by the end of the Parliament. That is a continuation of existing policy to ensure that SMEs participate in government contracts, and on its face will be a welcome statement (although it is likely that much of this 33% will go through sub-contracts, rather than direct contracts with Government). Procurement timeframes are often very tight, and often encourage consortium bids - if increased access to public sector contracts is an area that you are considering, it may be worth looking now at how best to form consortia with other SMEs in anticipation of future bidding opportunities.
  
  
• Immigration Skills Charge - if you employ non-EU workers you can expect an increase to the Immigration Skills Charge which is currently payable by businesses that sponsor Tier 2 sponsored workers. The immigration skills charge came into effect in April, and is currently set at £1,000 per employee per year (with a reduced rate for small businesses - i.e. those with a turnover of less than £10.2m). The Conservative manifesto propose that this would double to £2,000 per year by the end of the Parliament.

Timeframe for Implementation?

Over the next couple of years, the increasing focus on the Brexit negotiations seems bound to divert attention away from some domestic matters, and it may be that some of the Conservative's proposals won't make it onto the statute books early in the Parliament (if at all).

As the consequences of a new political balance of power within the UK and a shift across Europe continue to emerge, we will make sure that we keep you informed in future Decision Makers' Briefs, and VWV Business Club seminars.

For more information or advice concerning any of the above, please contact Ed Rimmell in Commercial Law team on 0117 314 5232 or your usual contact at VWV.

Questions? Please leave a comment below and we'll get back to you.