Business owners watching the Autumn Statement could be forgiven for peering between their fingers, but it wasn’t anything like the horrifying, pound-plundering fiasco that was Liz Truss’ doomed Mini-Budget mere weeks ago.
Instead, Chancellor Jeremy Hunt announced carefully considered measures to spur long-term growth, drive down inflation and insulate businesses from rising costs. “Inflation is even more insidious than taxes,” he said - and it’s clearly an ideology he’s willing to firmly back to balance the books.
It was arguably the most transparent and honest budget in recent memory. There were no rabbit-out-of-the-hat moments and no sweeping reforms that might scare off investors. Instead, Jeremy Hunt announced that the government will control growth with a solid and sensible plan to lower inflation and ease pressure on struggling businesses.
That doesn’t mean that there will not be difficult times ahead as there will be with inflationary pressures especially on energy costs, interest rate pressures, no real resolution to the business rates issues, and a substantial use of fiscal drag with most tax thresholds frozen for a five-year period. But, it seems better to have market and financial stability than unaffordable tax cuts and unsustainable support.
The crux of the Chancellor’s announcement was on tax, although only one tax rise was described as such. Roughly 250,000 workers will pay the top 45p tax rate from April when the threshold falls from £150,000 to £125,140, and this is largely a political statement as it will raise less than £500m a year. With all other tax thresholds frozen until 2028, this will create fiscal drag that will slowly shore up the government tax receipts over time through stealth tax rises as earnings increase, while thresholds do not keep pace with inflation.
Mr Hunt also announced that he will soften the blow on businesses with a £14.5bn tax cut in business rates and reassured business owners that bills should accurately reflect market values. He announced a government-funded Transitional Relief Scheme which will benefit 700,000 SMEs over the next two years. On top of this, the government will also be removing import tariffs on over 100 goods used by UK businesses in production processes - which is likely to have a noticeable impact on production lines across the nation.
For those in the agricultural sector, many have feared that agricultural property relief and business property relief might disappear or be reduced for Inheritance Tax - but these concerns remain an abstract idea, one that hasn’t materialised into a tangible concern.
There was also a lot of speculation about Capital Gains Tax (CGT) rates increasing, but there has been no mention of this since. As widely expected the annual exemption for individuals for CGT though is set to be gradually lowered, from £12,300 a year currently to £6,000 from April 2023 and then a mere £3,000 from April 2024. This will reduce the opportunity for using the annual exemption each year with small capital disposals.
The upcoming review of the 630,000 economically inactive members of the national workforce could also prove interesting, so employers are urged to keep an eye out for announcements as they become available. This, along with an anticipated review of pension age early next year, demonstrates the intention to get people working and paying taxes, rather than claiming benefits. The triple-lock protecting pensioners will also stay in place, with it matching inflation at 10.1% - but of course, it was always unlikely that the party could risk scrapping such a popular measure with an election looming around the corner.
Another measure to be aware of is the rise in the National Living Wage to £10.42p/h from April next year. This will no doubt have a huge impact on businesses involved in all labour-intensive sectors. They will have to look carefully at their outgoings and profit margins to ensure that they can absorb this sizable increase of 9.7%.
The Autumn Statement itself seems at odds with the Office for Budget Responsibility’s (OBR) own review, which has said that the economy is definitely in a recession, wiping out eight years of growth.
Despite the warnings of a long-term recession from the OBR, which probably more accurately reflects the position leading up to today rather than today’s announcement made, I’d say that the Autumn Statement is encouraging news for SMEs. In my view, The Chancellor has demonstrated a very tactful tightrope walk between calming the nerves of financial markets and offsetting fiscal freefall through very reasonable, and largely future, tax increases. With a focus on a highly-skilled workforce and a high-wage economy that leads to long-term prosperity, it’s good news - and it shows none of the hysteria that surrounded ex-Chancellor Kwasi Kwarteng’s disastrous mini-budget.
A tax rise in all but those explicit terms, it relies heavily on fiscal drag, but the Government has shown remarkable restraint on spending cuts, maintaining budgets for the NHS, capital investment and R&D. The markets are yet to react, but we should soon see if the cautious measures to start to plug the £177bn hole in the public purse can be plugged - without plundering essential services.
Our team and I shared our thoughts in a special post-statement event on Friday 18 November, where I hosted a panel of Duncan & Toplis experts who provided a detailed summary of the announcements and what they mean for individuals and businesses in our region.
Details on how to watch this webinar can be found here.
A written summary of the Autumn Statement can be found here.