The UK’s new Chancellor Jeremy Hunt has overturned nearly all of the financial measures announced by his predecessor Kwasi Kwarteng less than a month ago.
Sean Farnell, Partner at Burgis & Bullock, discusses the change to plans in our latest blog and why it is important that businesses have stability now to be able to strategically plan for increasing taxes and costs.
That is the one quality that businesses prize above all, and it is without doubt something that has been lacking in Government policy in recent months.
Businesses across the country – including here in Coventry and Warwickshire – have been standing on shifting sands of late and even for professionals like us at Burgis & Bullock it has been incredibly difficult to plan ahead.
In terms of the changing picture, it is reminiscent of the height of lockdown when the goalposts moved for businesses on a weekly basis.
While some of the measures announced by Kwarteng a few weeks ago were certainly going to benefit businesses, I don’t think you can really argue with the reversal of any of the measures, given the market pressures they brought.
Ultimately, market instability isn’t very good for anyone. Rising interest rates are a challenge for businesses and homeowners. Exchange rate movements don’t help either.
Growth in the economy is driven by investment from businesses and the increased costs of borrowing would have had an impact on business investments, from large corporates down to SMEs.
Something had to be done, and while many of the moves could be viewed as positive, they were done too quickly and shocked the markets. The last thing businesses in this country needed was market volatility.
Businesses like certainty and if they know the circumstances facing them, they will work out a way to continue doing business in those circumstances. We have to now hope that Jeremy Hunt keeps on this course and allows managers and owners to plan for what is to come.
The scrapping of the promise to cut income tax to 19p by 2024 is quite a big change. It is also significant, and perhaps unfair, that the proposed 1.25 per cent dividend taxation rate cut for basic rate and higher rate tax payers has been scrapped.
Not cutting the dividend tax rate but still cutting National Insurance by 1.25 per cent is a difficult one to comprehend.
IR35 reforms have returned in the latest U-turn and means that businesses will remain responsible for determining the employment status of freelance workers – a big hit for self-employed people who saw their tax bills rise with bigger costs from direct employment for businesses.
Corporation tax is now set to rise to 25 per cent again, another of the U-turns, and this will have a negative impact on businesses. Politically this could have been dealt with in a better fashion, could they have considered bandings? With rates changing between small businesses and multinationals?
I don’t think businesses would have felt a banding system to be unfair. It’s an anti-competitive tax, there’s no two ways about it.
We’re still in a period of total uncertainty and we can only hope that the Government can foster at least a few months of stability to give businesses a chance to plan and forecast for the future.
However, there is a chance we could have a new Prime Minister in a matter of days and then suddenly the dynamics of fiscal policy change again.
At Burgis & Bullock we continue to be on hand to offer client support and guidance on business planning through these uncertain times. There are still funding opportunities out there for businesses looking to invest and even in this current climate people are willing to lend to good businesses.