With the publication of the Government’s Autumn Budget come a number of key implications for UK businesses. Read on for our summary of the report’s main revelations about the country’s future economic strategy, as well as our expert analysis of what they could mean for your firm and its workforce in the coming months and beyond.
What are the key points of the Autumn Budget?
In order for us to commence any discussions surrounding this year’s Autumn Budget and its short- or long-term ramifications for British companies, it’s vital to clarify precisely what Chancellor of the Exchequer Philip Hammond announced on November 22nd. To that end, let’s first round up all of the core – and indeed the oft-overlooked – announcements in simple terms before moving any further, as detailed by BBC News, the Financial Times and the Office for Budget Responsibility (OBR):
- UK economic growth – will slow to an average of 1.4% per year for the next half-decade, according to the OBR’s revised forecast
- Borrowing – will drop from £39.5bn in 2018 to £25.6bn in 2022-23, with the country’s deficit predicted to decline by 1.1% between now and 2023 as a result
- National living wage set to rise – by 4.4% from £7.50 an hour to £7.83 next April
- First-time house-buyers stamp duty – will henceforth no longer apply on properties under £300,000, nor for the first £300,000 of any properties under £500,000
- Small business VAT threshold – will remain at £85,000 for the time being
- Business rates – are set to be calculated against the retail price index (RPI) from April 2018 onwards, as opposed to the original April 2020 cut-off point
- Research & Development (R&D) – the Government will invest £2.3bn more into R&D as well as providing 12% higher tax credit for firms operating in the field
- A National Centre for Computing – will be established along with £84m dedicated to hiring computing science teachers and filling the IT sector’s skills shortage
- Electric Vehicle Investment – new incentives to invest in electric vehicles will include a £400m charging infrastructure fund, a £100m Plug-In-Car grant and an extra £140m of research support
- Digital firm sales royalties – those sales conducted in “low tax jurisdictions” will now become subject to UK income taxes
- £1,000 tax discount for pubs – if their property’s rateable value stands below £100,000 until March 2019, with revaluations occurring every three years. They’ll need to pay higher duty on “cheap, high strength, low quality products”, but duty on other ciders, wines, spirits or beers has simultaneously been frozen
- Government new homes scheme – there is an aim to build 300,000 new homes a year by the mid-2020s and hold a consultation on the oft-lengthy gap between planning permissions and house building
Will these status quo shifts affect my business?
As with most UK economic developments, how this British economic overhaul will impact your business will vary depending on whether one views those changes from a company-wide or individual perspective. Some announcements could well benefit businesses as a whole far moreso than the financial wellbeing of their employees, while others could feasibly have the opposite effect. It’s for this reason that we’ll split our investigation into two sub-sections focused on what businesses and their individual employees should take away from the report.
Any announcements surrounding national finances will inevitably carry implications for businesses nationwide regardless of sector; indeed, the deficit declining to such a point where the Government will have £14.8bn headroom for further spending and tax cuts by 2020-21 might be cause for celebration to those firms who’ve struggled with the unstable economy of late. That said, the OBR’s 1.4% average UK economic growth prediction means progress towards economic stability – with the stronger exchange rates and funding this brings – will be slow, this figure having dropped since the Spring Budget due to high levels of inflation having “squeezed” spending and household income.
The Budget does provide greater clarity for the future of specific industries. For instance, manufacturing firms will soon find their finances affected by legislation depending on their environmental stance. The increased funding afforded to users and researchers of electric cars alike might well increase production demand exponentially, while the higher taxes awaiting owners of diesel cars produced after April 1st, 2018 – if these vehicles fail to meet specific European regulations – could lessen demand for this type of transport. Those businesses using cars produced before then or diesel-fuelled vans can rest easy, though, since both are exempt from these tax hikes.
Elsewhere, R&D-focused firms and pubs now essentially hold a roadmap in their hands, one which goes a fair distance towards detailing the trajectory of their respective sectors. For the former, that assurance comes via additional funding and higher tax credits, while for the latter, the raised levels of duty for “cheap, high strength, low quality products” at least show pubs the types of products on which to focus their spending in the months ahead, albeit with an inevitable knock-on effect for any food and drink firms making the cheaper products.
From an SME perspective, the Autumn Budget has put some longstanding fears to rest but also brought other concerns to the forefront. That the £85,000 VAT threshold is going nowhere, for example, will surely elicit sighs of relief from any of Britain’s up-and-concerns who had heard the rumours of an incoming threshold downgrade to match those of other EU nations. On the other hand, earlier this year we published a blog on the substantial pressures which business rates already can place upon SMEs at their current level, and we would highly recommend that you consult our business rates guide here given the potential for these rates to rise two years ahead of schedule.
But where we can pivot from those announcements affecting overall businesses to those impacting individual employees is with the matter of wages. Whether the 33p increase in national living wages bodes well will depend on whom you ask, with the employees set to earn an average of £600 extra wages per year unlikely to complain but the firms needing to subtract that £600 from their spending on other projects, supplies etc. unlikely to cheer. That said, this hike in minimum wages could at least prevent future discord between employers and employees over the need for other pay rises, thus strengthening their professional relationship.
Employees might stand to gain from the evolving property market too, judging by the plans outlined in the Budget. If the Government succeeds in building 300,000 extra homes in the coming years, then this could create more affordable housing, particularly in urban areas such as the UK’s cities which are set to become a major point of focus. Moreover, the aforementioned changes to stamp duty could further this drive towards accessibility and affordability, though the OBR has predicted that a resultant 0.3% rise in house prices by late 2018 could limit the benefits yielded by these revised taxation rules.
The Brexit factor – how does this come into the equation?
Before acting too hastily based on any of the potential Budget consequences discussed above, it’s important that businesses keep in mind the present UK economic context surrounding the document’s recent publication. With Brexit negotiations still ongoing and trade talks yet to commence, the deals which Britain may secure with EU-based and other nations between now and March 2019 could monumentally affect the economy’s stability and thus whether future Budgets pursue the same course of action as this one.
Be sure to stay tuned to our blog in the coming weeks and months for all the latest details on how these discussions progress and whether their outcome will enable the Autumn Budget’s promises to be fulfilled.
Find out more
Our blog houses plenty of further details on the economic hurdles ahead as well as the help available for struggling businesses. From interest rate hikes to SME challenges to the pound’s ongoing freefall, there’s no shortage of topics covered by our Knowledge Centre, and we hope that you’ve found this article of similar use as a guide to understanding the Autumn Budget’s ramifications.
Indeed, we’re always keen to hear your feedback on our past and present content, and will endeavour to take into account any trends mentioned by our clients in future blog posts. If there are other issues which you want to see us cover in the coming weeks, why not follow us and get in touch on our Twitter, LinkedIn and Facebook pages?