In the run up to the Autumn Statement, my thoughts had been more focused upon business stimulation and investment over personal gain to provide a boost in what seems like an increasingly flat economy for many. It had been suggested to me that the corporation tax rate increases might be waived but instead the focus is on the full expensing investment allowance being made permanent instead of regularly reviewed and renewed. This seems like a good policy but is it more a headline grabber than a real giveaway?
For the businesses that we act for, the £1 million Annual Investment Allowance will nearly always be sufficient so the Chancellor is looking to the largest businesses to invest. What we now need to see is these businesses investing in an effort to boost productivity but after generations of talking about required productivity increases will this make the difference? Certainly the policy couldn’t be more generous but will management have the confidence and cashflow available to them to make the positive decisions the Chancellor wants.
In the short term we have an election and with the current popularity of the Government, it suggests there will be a change of colour after the general election vote takes place. However, this might not be the worry of the past as the Labour party agree that investment is needed to boost productivity and secure growth so full expensing should remain as long as the elected Government can afford to keep it. More of a concern for business owners might be that this an upcoming election which neither party wishes to win as the options available to the winner are limited and no obvious or easy answers exist to the problems that the economy faces.
Growth is flat in many areas and there are warning signs all around. Clients are facing pressure to cut prices to keep work suggesting that the usual pre recessionary desperation is taking hold to secure work at far too low a margin. Our daily post demonstrates more clients with outstanding taxes being chased and penalty points being awarded for failing to submit VAT returns on time. Yet it is not all doom and gloom as others are still returning good profits despite everybody struggling to hold onto staff or find suitable applicants for vacant job roles.
Turning to the individual, the scrapping of Class 2 National Insurance (NI) and reduction in Class 4 NI by 1% from 6 April 2024 are welcomed by the self employed as we – as a group – don’t get much. But then we think about when we pay less and it won’t be until 2026. However, those in employment will benefit from 1 January for their 2% drop in NI as you can change that part way through the tax year as its calculated by reference to weekly rather than annual earnings. It also suits the Chancellor to be able to take advantage of this so that the larger group of employed voters can get immediate benefit before the election so that they vote for Mr Sunak come next autumn. Or so he hopes but he may be disappointed after a nightmare period post pandemic for the Government.
The challenge that my clients and I have over the winter is to keep hold of our workforces, particularly the skilled ones, so that we can deliver our services. We might need to reward some of our apprentices based upon reaching a birthday irrespective of ability, so our training will need to be excellent to keep skill development in sync with ages – a problem when other staff want to work at home and might not be keen or see it as their responsibility to train colleagues. We then need to make sure our costings will be good bringing into account items like higher corporation tax and interest again which we haven’t had to consider as seriously since the base rate fell to 1% many years ago. So, we are adding higher capital and revenue costs into the pricing basket at a time when customers are pressing for lower tariffs. Something has to give.
The Chancellor indicated that the corner had been turned so tax reduction could take place, but his statistics are generally a little on the drag. He needed to make some concessions to give his party a chance going forward but if he is behind the curve, we might see his giveaways as misplaced by spring. At least his jokes were good particularly the one about the 2 Jeremys!
Nick Forsyth – Managing Partner