The Chancellor’s long-awaited Autumn Budget was delivered with an air of positivity, framed by revised growth forecasts indicating that the UK’s economy is enjoying a stronger post-pandemic recovery than first predicted. However, a relatively neutral, mix of policy announcements has given businesses a lot to think about as we head into the winter months. Commitments, which play into the government’s five-year plan, ranged from an increase in corporation tax for banks to further investment in regional transport infrastructure. With a large bulk of policies trailed to take hold in 2023, it’s evident that the Government’s focus is on reshaping the economy post-COVID.
Key policies such as proposed business rate reforms and a 12-month 50 per cent discount in rates for retail and hospitality businesses will undoubtedly be welcomed by SMEs across the board. Similarly, the extension of the Heavy Goods Vehicle (HGV) road user levy until August 23 will provide relief for those suffering from supply chain issues. Yet, as we enter the repayment period for the myriad of Government COVID support schemes, there will be a record number of businesses finding themselves saddled with debt for whom these allowances will offer little solace.
Businesses in all sectors are facing significant headwinds, even as activity begins to resemble pre-pandemic levels. The UK’s tax liabilities are currently at the the highest sustained level in peacetime – although it’s worth noting that the Chancellor has committed to cutting tax drastically ahead of the next election. Running parallel to this, the Budget saw the Chancellor reveal the Office for Budget Responsibility’s (OBR’s) estimation that inflation will rise to 4.4 per cent in 2022. More robust businesses that are able to pass on price increases to consumers will be able to better absorb the effects of inflation. However, for many SMEs already struggling under a combination of unparalleled debt burdens, supply chain issues and HMRC arrears, higher inflation, and policies such as the national minimum wage increase, this will be significantly challenging.
So, what are the key takeaways for the UK’s businesses?
Following an 18-month long consultation, the Budget saw the Treasury announce the first set of long-awaited changes to the business rate system. The reforms will see the multiplier for calculating rates frozen throughout 2022 and 2023, a move which is set to save businesses up to £4.6 billion over the next five years. The Treasury will also adjust the timing of revaluations, which will move to every three years from 2023, down from the current rate of every five years. The Supporting Small Business Scheme (SSBS), which aids ratepayers who have lost their small business rates relief due to an increase in their property’s value, has also been extended.
The most notable announcement in this regard was the introduction of a 50 per cent discount on business rates for hospitality, leisure and retail businesses. Overall, this is a tax cut worth £1.78 billion and represents the biggest single-year cut to business rates in 30 years, outside of emergency COVID-19 relief measures. The majority of businesses in these sectors had to cease operating completely during the pandemic and are at the forefront of dealing with the fallout, so this will act as a welcome relief.
Other measures announced to support businesses looking to rebound from the pandemic include a six-month extension to the COVID recovery loan scheme as well as the extension of the HGV Driver Levy and a cancellation of the proposed fuel duty increase, both of which will help businesses struggling with supply chain issues and higher energy prices to reduce their overhead operating costs.
A particularly noteworthy policy announcement, was an increase of the national minimum wage to £9.50 an hour from £8.91 from next April, for workers aged 23 and over. The Prime Minister has made clear his plans to cultivate to a ‘high wage, high skilled economy’, and this is a strong statement of intent in doing so. This increase in the living wage combined with a proposed cut in the Universal Credit taper rate will provide reassurance for those in the lower income bracket and could also encourage an increase in consumer spending – a positive proposition for businesses looking to return to pre-pandemic levels of business activity.
However, it’s worth noting that in the context of increased taxation, universal credit cuts and the increased cost of living, the real benefits of the minimum wage increase announced by the Treasury will be limited, while its impact on businesses will be sector-dependant. The e-commerce industry, for example, employs a large proportion of minimum wage employees, yet key players in this sector benefit largely from economies of scale and thus will be able to absorb the extra cost. Alternatively, for smaller businesses in the retail or hospitality sectors that are already struggling, the increase could pose an additional burden.
The Government also took the Budget as a chance to outline how it plans to address the skills shortage. Unemployment has failed to reach the levels feared at the height of the pandemic but still remains a problem which needs to be addressed as a matter of priority. To combat this, the Chancellor has confirmed an extra £3.8 billion for skills funding, including £1.6 billion for new vocational T-level courses, £170 million for apprenticeships and £550 million for re- and upskilling adults, with a particular focus on industries such as digital and automotive where talent gaps are more pronounced. The Government will also introduce a new ‘Scale-Up Visa’, which will aim to make it quicker and easier for businesses to acquire highly skilled, foreign-born talent.
Another way that the Government plans to deliver a ‘high wage, high skill’ economy is by boosting innovation. In the Budget, the Treasury promised to funnel “unprecedented funding” into innovation by increasing R&D spending to £20 billion a year by the end of this parliament in 2024. This will be in addition to a change in the R&D tax relief rules which will be expanded to include cloud computing and data. While promising, it’s worth noting that this is a climb down from the Chancellor’s previous commitment in March of £22 billion per year. As the UK looks to reskill its economy to adapt to changing technologies, further investment in this vein will be vital – especially for key industries such as automotive manufacturing which, as outlined in our recent article, is at an important crossroads ahead of the transition to hybrid and electric vehicles.
The Government’s promise to ‘level up’ the country outside of London formed a key tenet of its election campaign. Following a period of uncertainty over what this would look like in practice, we’re beginning to get a clearer picture of how they intend to deliver on this. The Budget saw the first allocation of money through the newly formed ‘levelling up’ fund, with more than £1.7 billion worth of additional investment announced to support development in 107 local authorities in a move that is predicted to bring jobs and opportunities to communities around the country. Although regional leaders have been calling for increased investment for a while now, the general consensus amongst those outside of London is that their expectations were not fully met with this Budget, especially in addressing the issues around standard of living in the North which have a notable impact on productivity.
Alongside this, the Chancellor outlined his plan to deliver an ‘infrastructure revolution’ through a host of commitments including a £2.6 billion long-term pipeline of more than 50 local road upgrades, more than £5 billion for local roads maintenance, funding for buses, cycling and walking schemes totalling more than £5 billion and more than £5.7 billion to deliver a ‘London style transport infrastructure’ in the devolved city regions. There have long been calls to upgrade the UK’s transport infrastructure, particularly outside of London, and these commitments will be beneficial in improving job prospects and mobility around the country, creating further opportunities for businesses to evolve and grow.
For businesses in many sectors, the commitments made in the Autumn Budget will provide reassurance following the pandemic, yet for many it will not have fully met their expectations in providing support in the face of what is likely to be a difficult few months.
For those that are struggling, it is never too early to seek advice so that all options can be considered. Addressing challenges as soon as they appear – and seeking any help needed – will maximise the amount of time management teams, their advisers and partners have to assess the issues and consider a range of possible options. This will in turn maximise their chances of recovery.