If this statement from the Chancellor is deemed to be “mini” then heaven help us when he comes to making a major statement! But whether it was “mini” or “maxi” there is lots to look through whilst trying to understand if it is a “final throw of the dice” or the “new era” as claimed by the Chancellor.
The desire to grow the economy is a good one and something we would all support. However, in an economy where there is nigh on full employment, it seems difficult to understand how this can be achieved. I accept that UK productivity falls behind that of some of our European neighbours and needs to be addressed and therefore welcome the announcements on capital allowances (AIA) being made permanent at £1m per annum. That being said, we have known this issue exists for many years and little progress appears to have been made so why is it this time going to achieve more than earlier announcements?
The levelling up measures are more of what I originally expected against the recent statements about making buses more available in Middlesbrough. They may bear some fruit but will it lead to a movement in firms within the UK or will it produce new businesses landing in the UK to take advantage? And if firms do arrive from abroad, will the workforces that they need be available and if not, post Brexit, from where will they come?
I’ve heard much about wage stagnation and looked into some of the detail. It appears that the self-employed are the most affected group in that their “wage” equates to their net profit and with pressure on them to hold prices, they aren’t seeing the increases of those receiving minimum wage. Of course, that could equate to not all of the “wages” reaching the books (the thing we can’t talk about) but thinking this through, the VAT rate and threshold – which hasn’t moved for a number of years – could have a bearing on such matters.
The general public don’t like the extra 20% of cost and so seek an unregistered supplier. If the rate for certain projects was decreased or the level of activity from where it was required to start was increased, this pressure might ease and we might understand what the real self employed “wage” was. Of course, this would require some thought and Politicians (of all Parties) don’t appear capable of that these days, preferring to wield a mighty sword like a blunt instrument on tax cuts or windfall taxes.
Tax cuts were promised and delivered. It seems unbelievable that this group of politicians have had the time since their appointment to gain such a strong handle on the public finances to be able to take such bold action. The former Chancellor who knew the figures well was telling us that this was not the time for such action, until it showed that he wasn’t going to win.
Our Prime Minister will say that she worked through the numbers whilst campaigning but dropping taxes doesn’t always produce the results that are desired. In terms of the corporation tax changes, many small businesses (and their accountants) will be delighted that the marginal rules will not come back into play, but in the short term the energy increases – even after Government help – will see all business profits fall and the liability being calculated on a lower sum. The personal tax and National Insurance reductions will of course be welcomed, but can we afford them as most were earmarked for specific things?
Overall, I see Ms Truss trying to mimic Mrs Thatcher and only time will tell whether this is the right move. As someone who doesn’t want to interfere with market forces, she has to face that;
- input prices are rising for all businesses leading to price increases,
- supply chains are still unpredictable leading to delays and poor productivity,
- labour shortages are faced in the majority of sectors and not the minority,
- most businesses use energy in a consistent way and not just through the winter,
- Some cost of living increases result from business energy cost increases effecting the production cost which filters through to the supermarket shelves, and
- Many businesses are under continuing pressure to keep prices down to help customers which ultimately puts their own profitability or viability at risk.
If this “new era” doesn’t give the economy the bounce it seeks, we will need a major bounce back loan from our lender to keep us going. I’m worried how we might repay that if it becomes necessary.
Nick Forsyth – Managing Partner