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Contractors want alternatives to rate rises

Contractors want alternatives to rate rises

There are concerns that plans to raise interest rates to 3.5% could have an adverse affect on contractors who operate as limited companies. The OECD urged the Bank of England to urgently implement such a rise at the end of May.

R3, the insolvency trade body, says that if interest rates rise by between 1.5 and 3%, 7% of SMEs believe they would become insolvent. This rises to 18% if rates are set between 4 – 5%. Interest rates are currently 0.5%; an all time low.

Increased interest rates would be a double blow for businesses that rely on consumer spending to repay their business bank account loans. Any increase in the cost of borrowing regardless of whether it’s used as working capital or to enable business growth will pile increased pressure on highly geared businesses.

Research by R3 shows that the sectors most likely to be hit by an increase are retail and hospitality. Almost 33% SMEs in those sectors believe that any interest rate rise could lead to their demise. However, small businesses operating in construction and manufacturing are more confident that they could cope.

The outlook for retailers is already looking shaky as many are expecting the Chancellor to raise the VAT rate to 20%. The BRC recently warned that 163,000 jobs would be lost over the coming four years if this change takes effect.

The chief executive of Kingfisher, Ian Cheshire, has called on the government to increase the range of products that attract VAT, rather than increasing the rate. Books, newspapers, children’s clothes and most food are currently zero-rated.

However, Justin King, the chief executive of J Sainsbury, says that such a move would harm low income families who spend a large proportion of their income on food.

With the emergency budget just two weeks away, it looks like George Osborne has some very tough decisions to make if he’s going to reduce our fiscal deficit.

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Image: 113/365 Drowning by Gibson Claire McGuire Regester

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