Time to raise the VAT threshold and back Britain’s entrepreneurs

Peter Bedford ©House of Commons/Laurie Noble
From Richard Branson to Lord Alan Sugar to James Dyson, the United Kingdom has long been the home of entrepreneurial spirit. We encourage, we celebrate, and we praise the innovation behind enterprise that bring economic growth to our modest in size but great nation.

When Napoleon described us as a “nation of shopkeepers” it was intended as an insult, but in truth, it’s a badge of honour for a country that is built on the hard work of the early risers and the late-night grafters.

Yet today, that spirit is under threat. This danger doesn’t come from economic forces out of our control, but from within Whitehall itself, from the civil servant ‘group think’ that dominates the Treasury.

One of the most damaging examples is the UK’s VAT registration threshold. This threshold is currently set at a measly £90,000. This creates a cliff edge that punishes small businesses for growing and serving our communities. This cliff edge means that as soon as a business reaches this turnover line, it is forced to make the agonising choice to either absorb a 20% VAT hit on their thin profit margins or pass on that cost to customers, weakening their competitiveness and stalling their growth.

An increase of this threshold is not just a tax issue. It is a growth issue. We must remove this ceiling on ambition.

In my own constituency of Mid Leicestershire, I hear this messages time and time again from local entrepreneurs. These are the individuals who’ve taken the bold step to start their own businesses but are being held back. Not just by this threshold but also the cumulative impact of rising employer National Insurance and the looming regulatory burden of the Employment Rights Bill.

It is no wonder that the Institute of Chartered Accountants in England and Wales have recently reported that small business confidence has declined since the last General Election.

Civil Servants in the Treasury may think that this is a small technical matter, but the reality is for many small businesses in Leicestershire and indeed the rest of the UK it is a real-world barrier to success. Raising the threshold wouldn’t cost the Treasury much in the grand scheme of things, but it would send a powerful message to the country’s wealth creators: we believe in you, and we want you to succeed.

Admittedly, Government Ministers may not be well versed in the policy decisions of Margaret Thatcher. However, what our first female Prime Minister understood was that every Government needs to create the conditions to allow individuals to take risks in business. This is why her Government set up the Enterprise Allowance Scheme that supported businesses such as Creation Records and Superdry to become multi-million enterprises. Now I understand that this boldness would not come naturally to Civil Servants but a rise in the VAT Registration is a simple sure-fast way to help small businesses.

However, it seems as if this anti-business Government may actually make things worse. There have been calls from advisors inside Government to actually decrease this threshold to a derisory £30,000 instead. This proposal from the Minister for Pensions highlights the lack of awareness for small business. My Conservative colleagues and I would never support policies that damages small and medium sized businesses.

What is more frustrating is that if the Government actually reached out to industry, they would actually understand their concerns. The Federation for Small Businesses, for example, have highlighted that this arbitrary threshold adds on average £4,100 to the running costs of a business. Meanwhile HospitalityUK have argued for a VAT cut for the industry, like countries around Europe have.

If we are serious about unlocking the next wave of British entrepreneurship and go for growth like the Government have consistently promised, we must stop penalising those who try to grow. It’s time for a modern tax system that rewards ambition.

It is time to raise the VAT threshold and back Britain’s entrepreneurs.

Mr Peter Bedford MP

Mr Peter Bedford is the Conservative MP for Mid Leicestershire, and was elected in July 2024.