Since Rishi Sunak unveiled this year’s budget on Wednesday this week, we thought it worthwhile looking at what this critical economic statement and his planned interventions for the next 12 months could mean to your business.
You may well have seen the headlines about how you will benefit the next time you order a pint of beer, glass of prosecco or rosé but beyond this, as always, the devil is in the detail; to start off with, there was some important figures that at first sight make positive reading.
The Outlook
The chancellor painted a bright economic picture for the next 12 months with his assertion that the UK economy would return to pre-pandemic levels over the period; this coupled with better than expected unemployment figures suggest that recovery from the pandemic will be easier than perhaps feared.
Of course, pessimists may argue that it is still going to be in excess of 2-years hit to our economy and undoubtedly as recoveries gather pace worldwide, comparisons will be made with other economies, their handling of the pandemic itself and the effects of the interventions chosen to get them out of this, however with growth figures projected to be 6.5% this year and 6% next, something is clearly working.
On the subject of Inflation, it seems that this is likely to continue to rise over the next 12-months, however while the Chancellor projected 4%, the OBR project a figure closer to 5% suggesting that there is still some uncertainty to the art of prediction, and Mr Sunak may be better to err on the side of caution.
For Business.
Depending on the industry that you are in, there was inevitably mixed news in the budget; hospitality, retail and leisure will no doubt welcome the 50% reduction in business rates, which as it encompasses many of the sectors hardest hit by lockdowns makes sense although some are asking if the government could have gone further. Retailers will also find some positivity in the upcoming consultation on an ‘online sales tax’, however it remains to be seen if this will have teeth or not?
Of course, squeezed businesses will feel some pressure too, the government announced with some fanfare that wages have increased in real-terms by 3.4% since Feb 2020, and this week announced that the National Living Wage will rise by 6.6%; although this is of course voluntary for businesses as opposed to the Minimum Wage with its statutory backing, in a talent-short market it will inevitably put pressure on firms to compete, increasing the squeeze they will be feeling.
While this arguably applies to smaller businesses and benefits those on low incomes, an number of organisations having crunched the numbers project that families on middle-incomes are likely to feel pain from the wider raft of announcements with a believe that it will cost this group around £3,000 on average; this being the case, businesses may need to be prepared for increased calls for wage rises or failing that churn and recruitment costs as people seek better pay in order to just keep-up.
Looking at these in conjunction, it is hard not to see that businesses will bear the burden of our post-pandemic/post-Brexit recovery, however it is not all doom and gloom; the announcement that the planned rise in fuel-duty has been shelved will offer a little relief for businesses with fleets of vehicles however as the cost of crude-oil has also risen, this is simply a ‘less-bad’ scenario; and one which will come under some pressure from environmental lobby groups who feel it sends the wrong message just a few days before the UK hosts the COP26 summit; it is fair to expect that this 12th-annual freezing of the duty could be one of the last.
Another possible benefit to businesses is the announcement that the government will extend their R&D Tax Credits scheme; although limited to businesses which are looking to make an investment to further science and technology (although sadly not social sciences and theoretical studies); the other significant test attached to applying for the credit is that the project must advance the subject overall, and not simply be of benefit to your business ( however in many cases that will continue to be a happy by-product).
For Britain
Of course, much of this year’s budget has been planned to do two things; firstly, help the government to come good on their 2 big campaign statements of recent years, of ‘levelling-up’ in regions of the UK that have been left behind and ‘building back better’; and secondly, filling some of the gaps in the accounts caused by their ‘unrivalled in peace-time’ spending of the last 2 years.
There is a strong argument for taxation by stealth in this budget, with the combination of frozen income-tax bands coupled with projected salary rises one of the reasons people are citing, however this doesn’t mean that the government isn’t planning to spend this year.
The aforementioned levelling-up will be supported by a £1.7bn fund, while the UK’s courts will benefit from an additional £2.2bn in order to reduce the case back-log being experienced by Crown and Magistrates courts caused by the pandemic. The NHS will received £6bn in order to reduce their back-logs and £7bn has been pledged for transport projects – again, particularly those in those regions ‘left behind’ previously; and on a somewhat smaller scale a programme designed to improve numeracy in adults has been announced too as the government seek to improve skills deemed essential for the future of the UK Economy.
There we have it, inevitably a budget of give and take – is there any kind? Where much rests on the accuracy of projections in order to achieve the economic growth which is essential to support many of these plans and ensure that businesses can shoulder their share of the pressure.
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