Lynne Blakey, director in the advisory consulting team at Evelyn Partners comments on how the UK’s Spring Budget could impact business.
Jeremy Hunt’s Autumn Statement sought to restore the UK’s financial credibility, tackle the cost of living crisis and reduce inflation. It was a pretty bleak affair by anyone’s standards and the outlook for UK business in the short term looked grim.
There have been some chinks of light since then: Global energy prices have fallen to pre Ukraine invasion levels, UK inflation rates are slowly reducing and the UK has so far managed to narrowly avoid recession (ONS.gov.uk). However, businesses are still operating in a climate of high costs, rising interest rates and significant wages pressure often set against a backdrop of increased debt built up during the pandemic.
So with the Spring Budget fast approaching, here are five measures that I would like to see in the Budget to help businesses survive and thrive in the current economic climate:
Positive indicators for investment and a road map to growth
Uncertainty is a crippling factor for business growth. Certainty and a road map to the future is required to inspire confidence and encourage companies and individuals to remain, invest and expand within the UK business market.
Whilst cancelling the planned rise in Corporation tax to 25% (for companies with annual profits over £250,000) (CT rise) does not feel to be a feasible option (without increasing taxes elsewhere), I would like to see a roadmap for the corporation tax rate to reduce over the next five years to make investing in the UK an attractive proposition. This, combined with my second measure below, would provide an important message to investors.
Encouraging technology and innovation
I strongly believe that technology and innovation will be critical in delivering growth within the UK economy.
It is important for the Government to be seen to spearhead this drive for technology and innovation. There have been positive steps in this direction with the recently created Department for Science, Innovation and Technology, which aims to put the UK at the forefront of global scientific and technological advancement (Department for Science, Innovation and Technology). I was also delighted to see the pre-Budget announcement of an additional £370m funding package to help boost investment in innovation and growth technologies within the UK.
However, it is important that investment is seen as not being solely London centric. The recently announced plans to set up financial innovation hubs in cities across the UK (CFIT) is a good start in this process but I would like to see the Government go further, announcing concrete steps in funding specifically for other cities and regions to help attract new businesses and global tech firms, encouraging them to set up offices or hire remote staff outside London.
Finally, I would like to see clarity around the proposed reforms to R&D tax credits and preferably the implementation of a simpler system which will help drive innovation and technology across all business sectors.
Reform of the Energy market
I would like to see wholesale changes to the way the energy market works to reduce energy prices in the long term and stop the need for Budget intervention.
We have seen the impact of international issues on energy costs, and the resulting unprecedented government support required. Our electricity demand is set to at least double over the next 13 years and international issues aren’t set to improve in the short term. The way that wholesale energy is priced doesn’t work very well and is extremely complex. It was established for traditional energy generation and no longer feels fit for purpose, particularly given our mix of renewable and non-renewable generation and results in higher prices for everyone.
To mitigate these risks, I would like the government to announce sweeping reform that incentivises the market to produce clean, low-cost, domestically produced electricity. A government review (Review of Electricity Market Arrangements – REMA) commenced last summer with the aim of “establishing a fit-for-purpose market design, identifying and implementing the reforms needed to GB electricity markets that work for businesses, industry, and household” (Gov.uk). I would like to see a statement in the Budget committing to this process and supporting a reform that is commercial and transformative, a simplified system (as there are very few people who completely understand the whole energy market from generation to distribution and supply), and a clear timescale for implementation.
Support our domestic “salad” chain
Food shortages of cereal crops following the invasion of Ukraine, and most recently the lack of salad items in our supermarkets, bring home the stark reality of the deficiency of food security in UK. I would therefore like to see measures in this Budget to support our domestic agricultural industry and food production.
On leaving the EU, as many as 42% of farms failed to make a profit over and above the Basic Payments Scheme (NAO). With this scheme being gradually phased out between 2021 and 2027, the long-awaited replacement of the EU’s Common Agricultural Policy (CAP) within the UK, the Environmental Land Management schemes, were released in January. Whilst these have been broadly welcomed in the industry, incredible challenges remain for UK farmers.
Labour shortages, increased fertiliser and diesel prices, and high cost of technology have all stretched the farming industry.
I would welcome a relaxation of the rules for attracting seasonal labour to the UK to support harvests of home-grown foods. The current system is highly structured with little flexibility, particularly for harvests early in the year. I would also like to see more support for access to agricultural technology, an area that has witnessed significantly increased costs being largely reliant on imported technology which is putting the UK behind the EU and US in access to this technology. We expect our famers to provide high quality food for our table and act as stewards and guardians to protect and preserve our physical landscapes, often for incredibly low margins with little of the amount we pay for food making its way back to farmers. Helping our farmers run their businesses more efficiently is one step the government could take to help this.
A further welcome outcome from the Budget would be greater pressure on the food industry intermediaries and supermarkets to pay a fairer price for food to farmers. This could be incentivised by establishing supply chain codes of practice, and demanding that supermarkets publish more information about supply chains to encourage greater sharing of prices paid for food to farmers.
Invest in HMRC
The UK Tax Gap was estimated by HMRC at £32bn for 2021. This represents the difference between the amount of tax that in theory should be paid and the amount of tax actually received.
Reducing this gap is an easy way for the Government to increase revenue. Strengthening anti avoidance measures is a likely component of any budget to achieve this aim. However, HMRC needs to ensure it has the resources to capitalise fully on these measures.
The pressures on HMRC arising out of the pandemic, caused by a mix of home working, implementing the Coronavirus job retention scheme and unprecedented levels of deferral of HMRC debt has increased HMRC workloads. It would therefore be great to see in the Budget increased support for HMRC’s teams to help resolve the delays that some businesses are facing.
Investing in HMRC will support genuine businesses in remaining compliant with their tax obligations and allow them to quickly address any errors, whilst minimising loss of revenue from unscrupulous operators.