AAT’s view of what party manifesto promises mean for the economy

What we can take away from what’s included, and what’s missing.

With the General Election little over a week away, the parties are in last-minute campaign mode, with politicians racing across the country desperate to persuade the unpersuaded.

For many voters, the decision will already be made. But for others, where to put their X is still up in the air. For those in the accountancy profession, the last few weeks will have offered some insight into what to expect from the two biggest parties. The Conservatives and Labour both published manifestos to the usual fanfare, followed by the customary opposition attacks on both the plans and – most importantly – where the money was coming from.

Tax revenues are the main source of government spending, and the respective parties’ tax plans have been scrutinised ad infinitum, and indeed tax policy has served as a key battleground issue. But experience suggests that short-term tax policy and long-term tax reform can never be truly discerned from a few paragraphs in a manifesto; so attempting to analyse that many-headed beast at this point seems pointless. Better then to adopt a watching brief as the next Chancellor rolls out their vision for the UK’s tax policy in the coming months and years.

A different lens

Perhaps a more useful vantage point comes from looking at the parties’ plans for smaller businesses. As a quick reminder, there were 5.5 million small or medium-sized businesses (SMEs) in the UK in 2023, representing over 99% of the business population. SMEs are businesses employing 0-249 people, including sole traders. SMEs accounted for 61% of UK employment and 7% of business turnover.

Supporting the health and growth of smaller businesses makes both political sense – it’s popular – and delivers economic benefits, particularly at a time where public spending is squeezed. So, it’s no surprise that the Conservative manifesto trumpets its commitment to SMEs, saying “Small and medium-sized businesses are the lifeblood of our economy and we are making the UK the best place in the world to start or grow a business.”

Similarly, Labour extol the virtues of small and growing businesses, and say, “That is why, in partnership, Labour has developed a plan for small businesses – the lifeblood of communities and high streets across the country.”

Beyond the platitudes, there are some clues as to actual policy. Labour says it will focus on easing cash flow pressures on smaller business brought on by late payment. It will also remove barriers to finance, support exports, and make it easier for SMEs to access capital and to give them greater access to government contracts. Meanwhile the Conservatives have made improving access to finance a key pledge, along with creating Regional Mutual Banks and promoting the usage of digital invoicing.

Drawing the road map

From an AAT perspective, these promises give us a good sense of the parties’ priorities for smaller business, and are encouraging in their focus. Take late payments: the Prompt Payment Code (PPC), introduced in 2008, was designed to ease the pressure on SMEs by enforcing fair payment terms across the supply chain. In 2022 SMEs were owed on average an estimated £22k in late payments. This is a barrier to growth with small business owners and managers spending a disproportionate amount of time chasing payments, and has an impact on cash flow and can cause good firms to struggle.  

Given that research conducted by the FSB throughout 2022 found that on average, 52% of small businesses experienced late payments and 25% reported an increase in late payments, this is a significant problem.

Labour has recognised this in its plan, and the manifesto states specifically that it will ‘take action’ on late payments to ensure that small businesses and the self-employed are paid on time. Similarly, the Tories have highlighted late payment as a pain point for small businesses, and have promised enhanced powers for the Small Business Commissioner (OSBC) to tackle it.

Both of these promises echo the AAT’s consistent campaigning on this issue – we have long called for the PPC to be compulsory for any organisation employing 250 or more staff and for the powers, scope and awareness of the Small Business Commissioner to be expanded and strengthened.

In practice, we have said that requires empowering the OSBC to undertake investigations and draft reports as well as the teeth to impose financial penalties on businesses who persistently pay more than 95% of their invoices in more than 30 days. And it also requires a more concerted effort to engage with larger companies on the need to support their suppliers with prompt payment.

Where the rubber hits the road

Both parties mention the phrase ‘access to finance’ in their manifestos, but fail to adequately explain what they plan to do about it. Recent insight from the British Chambers of Commerce indicated that 49% of the businesses it surveyed who accessed finance considered that it had become more challenging to access funding over the last three years, with only 13% saying it had become easier. Without a commitment to open the books on this, address the key issues (de-banking is a growing problem facing the SME sector) and to regulate how banks operate in this area more closely, it’s hard to see how either party will create genuine change.

However, while it is always worth scrutinising what appears in the various manifestos, we can gather a lot from what doesn’t appear. Take skills: it’s one of the knottiest problems to unravel – how to create, maintain and reward a skilled workforce ready to take the country into the next few decades, where both digital and technical skills will be in great demand. A recent government report estimated the cost to the UK economy of the digital skills gap is £63bn per year, with 6.8m people in the UK having “ultra-low” digital skills. 

Neither party has mentioned much on this topic. While some deride politicians for the ‘vision thing’ as putting style over substance, the lack of a joined-up, inspiring and coherent skills policy for the next decade is hard to miss. That is disappointing. If the government can measure the digital skills gap so accurately, is it not fair to ask why it (or the party that wishes to replace it) cannot put similar resources into plugging it? and where is the focus on financial literacy? If the nation faces tougher times to come, then empowering the generation to understand how budget, save, invest and plan must be a priority.

Ultimately, as voters, all of us have to balance out our own priorities with those of the politicians asking for our votes. What we decide will have a significant impact on the future of the country.

Adam Harper is AAT's Director of Professional Standards & Policy..