On Thursday morning, Chancellor Jeremy Hunt revealed his Autumn statement, setting out the Government’s plans to tackle inflation, steady the economy and stimulate growth. Aiming to respond to an ‘international crisis with British values,’ Hunt highlighted three key areas of focus: growth, stability, and public services.
Whilst some of the announced measures may come as unwelcome news to some, businesses can rest assured that the measures included in Thursday’s Autumn Statement have been costed and backed up by figures from the Office for Budget Responsibility (OBR). Following the announcement, the OBR predicts that the measures put in place will lead to a drop in inflation from 9.1% this year to 7.4% in 2023.
The Chancellor confirmed that the UK economy is now in recession with the International Monetary Fund predicting a third of the World’s economy to follow suit either this year or next. Hailing his statement as a ‘balanced plan for stability,’ just under half of the Government’s £55bn consolidation will come from a hike in taxes and the rest from spending cuts in the public sphere.
If you didn’t manage to catch the announcement, here we look at some of the key measures laid out and what these might mean for UK businesses in the coming months and year.
Let's start with the positives; some of the measures laid out in this statement may come as a welcome surprise for businesses, with Hunt unveiling new measures introduced to help businesses and shops, a dedication worth nearly £14 billion. To protect businesses from rising inflation, business rates will no longer be increased in line with consumer prices inflation (CPI) from next April 2023, expected to save businesses £9.3 billion over the next five years.
The Chancellor also announced that the Government will go ahead with the business property revaluation in April 2023. Whilst this could eventually lead to higher rates for some, the package is set to benefit around 700,000 businesses and will mean business rate bills will increase by just 1%, according to the finance ministry.
The Chancellor also announced on Thursday that the Employers NICs threshold will be frozen until April 2028, however, the Government will retain the Employment Allowance at its new higher level of £500,000. According to Hunt, 40% of businesses will still pay no NICs at all.
The VAT registration threshold will also be maintained until March 2026, more than twice as high as EU and OECD averages.
Research and Development (R&D) Reforms
In his plan to make Britain the next ‘Silicon Valley’ and to make sure global corporations are paying the correct tax, the Chancellor announced reforms to R&D tax schemes.
To tackle reports of abuse and fraud in R&D tax relief, the deduction rate for the SME scheme will be cut to 86% and the credit rate to 10%, whilst increasing the rate of the separate R&D expenditure credit from 13% to 20%.
With the OBR confirming the new measures have no detrimental impact on R&D investment, the Government will work with the industry to understand what further R&D support SMEs will require.
An increase in windfall tax to 35% was also brought about by the Autumn Statement, leading to an overall increase in oil and gas companies’ tax to 85% on UK profits. Extended from December 2025, this increase is now set to last until March 2028. Coupled with a 40% tax on profits from older renewable and nuclear electricity generation, this new measure is set to raise £14 billion for the economy next year alone.
In a series of changes to personal taxation and wages, the threshold for the top rate of income tax will be brought down from £150,000 to £125,140. Income tax thresholds will also be frozen until 2028.
In its largest increase ever, National Living Wage will rise to £10.42 from 1 April 2023, equating to an increase of 9.7% or 92p and representing an annual pay increase of £1,600 to the average full-time worker. As wages continue to rise, the changes to tax thresholds will leave millions paying higher levels of tax.
Despite the Chancellor claiming tax as a proportion of income will rise by just 1% over the next five years, statistics from the OBR show that tax as a proportion of GDP is likely to be at the highest level for more than 70 years.
The Energy Price Guarantee (EGP) which currently caps household bills at £2,500, is set to rise to £3,000 in April, with the cap staying in place until 2024. For businesses, increasing energy costs will lead to increased overheads and tightening of customer purse strings, adding to the mounting pressure many SMEs are already feeling. According to The Chancellor, the Energy Price Guarantee (EPG) will be kept under review, and after April 2024 a new plan will be developed to protect consumers from energy price rises.
Whilst there are steps being taken to decrease our reliance on importing energy, which will eventually reduce prices, these measures are too far in the future for businesses to feel a difference, and further support will be required to manage rising costs.
So, what does this mean for UK businesses?
Although the Chancellor acknowledged that businesses need support to stay afloat during what is set to be a tough recession and put some measures in place to soften the blow, the Government’s ambitious consolidation plan will undoubtedly lead to turbulent times ahead. Whilst many UK businesses will warmly welcome the news of tax increases reaching bigger global firms, smaller businesses will feel the impact from today’s announcement the most.
The worsening cost of living crisis coupled with reduced pay packets and rising energy bills mean a drop in consumer spending is something of an inevitability. This will come as unwelcome news for many SMEs, who are already taking the brunt of this storm from all angles. For the Government’s consolidation plan to be effective, these new measures must be accompanied by initiatives that will support and stimulate consumer spending, whilst allowing businesses the legroom to invest in operations, to flatten the recession and encourage economic growth.
What is certain is that businesses will need the vital support of alternative lending to get them through the coming months. In times of financial hardship, the big banks and traditional lenders tend to start closing their doors to supporting businesses, tightening the belt and putting in much stricter lending criteria. Therefore, it's vital that alternative lending remains open for business.
At Time Finance, we work with some 10,000 business owners already, and while they navigate the current landscape, we know that they - and many more - need our services now more than ever.