3:20 PM 30th October 2024
business
Image: Gov.UK
The Chancellor had difficult choices to make to deliver stability for the economy and public finances. A more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long-term.
This is a tough Budget for business. While the Corporation Tax Roadmap will help create much needed stability, the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.
Only the private sector can provide the scale of investment required to deliver the government’s growth agenda. To achieve this shared mission of growing our economy sustainably, it’s vital that the government doubles down on its partnership with business to unlock the investment that is needed to drive opportunity around the UK.
“At first blush, there is precious little in the government’s first Budget which offers anything other than short-term pain for the business community. The government has chosen to impose a significant new tax burden on business as a means of achieving an immediate boost to its public sector spending priorities. The risk is that this will exert a negative impact on business confidence, with worrying implications for the economy’s future growth trajectory.
“On the positive side, the government has made changes to its fiscal rules, in order to accommodate borrowing for the purposes of investment, and published a corporate tax roadmap, both of which we called for in our Budget submission. The protection of public spending on R&D and the announcement of various transport infrastructure projects are also welcome. The role of the National Wealth Fund in directing investment towards the industries of the future will hopefully make a positive contribution to the economy’s long-term growth prospects.
“However, after a difficult few years, business leaders will undoubtedly find it hard to look beyond the imminent tax increases set out by the Chancellor, particularly the increases in employers’ National Insurance and capital gains tax. Whilst these broad changes had been largely pre-briefed ahead of the statement, the magnitude of the National Insurance tax rise is greater than expected and further adds to the burden on business.
“Business leaders can only hope that this is a big bang now, to wipe the slate clean, and that there will be no further shocks of this magnitude in the lifetime of this Parliament, enabling business to plan with more confidence.”
On changes to employers’ national insurance, Dr. Barker added:
“The changes to employers’ National Insurance represent a straightforward increase in business costs and take no account of whether a business is profitable or not. At a time when business confidence is low, hiring plans have already been hit by the government’s employment rights reforms, and the minimum wage is set to rise by more than inflation, this will hit employment prospects and earnings.
“The government is seeking to make a distinction between taxes on working people and taxes on business, with the former being exempt from tax increases following manifesto commitments. However, this is a false dichotomy. The effects of higher National Insurance costs will hit profits in the near-term before being passed on in lower wages and lower employment.
“Although the increase in the employment allowance will alleviate the hit for the smallest enterprises, there is no doubt that this increase in employers’ National Insurance is a major blow for most businesses.”
The IoD’s submission to HM Treasury, ahead of the Budget, can be viewed here.
This is a tough budget for business to swallow but the Chancellor has looked to ease the pain by holding out a promise of better days ahead.
While some protection for smaller firms is welcome, the increase in employer National Insurance Contributions will place a further cost burden on business. This, coupled with a 6.7% increase in the National Living Wage, means many firms will find it more challenging to invest and recruit in the short-term.
But the Chancellor has looked to off-set the upfront hit on firms by outlining a longer-term framework to provide stability for the economy.
Plans to raise infrastructure spending, sector-specific business rates relief and additional support for small business will take some of the sting out of the tax rises. And it is encouraging to see full expensing and the annual investment allowance made permanent alongside R&D relief being retained.
The Chancellor has also listened to our request to retain first year allowances for investments in the North Sea to help provide a just transition to Net Zero.
“Much now rests on the Government’s next steps, with the future benefits outlined by the Chancellor by no means guaranteed. A lot will be riding on the success of the Industrial and Trade strategies, the effectiveness of devolution and public investment in infrastructure to reinvigorate regional supply chains.
To build business confidence, it’s crucial that we now see decisive and inclusive action at pace from the Government to unlock the investment the economy sorely needs.
While the chancellor’s decision to alter the fiscal rules signals that more capital will be mobilised to invest into the UK’s infrastructure, there are major challenges that need to be addressed to help us deliver large-scale projects efficiently. Current planning legislation mandates project managers to balance the interests of the shareholders with those of all stakeholders, from construction workers to local communities and authorities.
However, economic criteria to assess value for money tend to be shareholder-centric, making it hard to raise the necessary money to conform to the stakeholder social and environmental concerns. This leaves managers between a rock and a hard place, forcing them to engage in endless bargaining with opportunistic stakeholders and unable to predict final project costs and duration. It also makes capital investment unattractive for shareholders. So as a society, we collectively seem to face a fork in the road. We either change legislation to give less of a voice to stakeholders, or accept that taxpayers will have to bear the additional costs with the commitment that it will help to deliver infrastructure projects that prioritise our collective welfare. But since we may have reached the limits of what people accept in terms of tax and spend, we may not have an alternative but to change legislation – as quick as possible.
“It’s a mixed Budget for self-employed people. The commitment to no changes to income tax, national insurance, and VAT rates is welcome. Similarly, no rise to fuel duty will be good news to many who work for themselves and rely on vehicles.
“The Chancellor promised to modernise HMRC systems and clamp down on unpaid tax debt and penalties. It’s never been more important for the self-employed to keep on top of their finances and hit deadlines to avoid fines.
“Despite the headlines around HMRC investment, the statement didn’t provide clarity on the timelines for the delayed Making Tax Digital for Income Tax. There was mention of a corporate tax roadmap, but self-employed people also need a clear timeline to prepare for changes.
“Some contractors could shoulder the burden of the changes to Employers’ National Insurance. Those contracting through umbrella companies and paid a flat tax rate will find the rise in National Insurance for employers will reduce their take-home pay, effectively making them collateral damage.”
“Changes to fiscal rules to allow for more infrastructure development may seem good on paper, but there is also an urgent need for practical, efficient solutions, such as modular construction, to support these ambitious projects. This is especially the case if the government wants to keep pace and demonstrate visible progress.”
This post was originally published on here
