Tough budget looms - Opus comments​

​

The new Labour government has been signalling ever since it was elected in July that the public finances were in a serious mess and that the measures needed to remedy this would be painful.  Most of the sour financial medicine will soon be administered by its first Budget at the end of October.  Ever since it came into office, it has been leaking and pre-announcing steps it may take in a bizarrely extended game of expectation management.  

Faced with such serious uncertainty for the business community, we asked Nick Hood, Senior Business Adviser at the Opus Advisory Group to look at what businesses should expect.

“Despite much comment about how changes to Capital Gains Tax and Inheritance Tax, a reduction in Pension Relief and a possible wealth tax might impact the motivation of entrepreneurs and prompt high earners to leave the UK, the major impact of any changes to personal taxes will instead be on consumer confidence and spending behaviour.”

“Action on Business Asset Disposal Relief (BADR) is the one major exception, where a reduction might change business owners’ attitudes.  This could trigger a short-term rush to sell businesses or a longer-term re-shaping of expansion and business investment plans.  The more likely option is for an increase, which must be the preferred choice to drive higher business investment to generate GDP growth.”

“Business taxes will be fully in the spotlight.  The government has already confirmed its intention to increase employers’ national insurance contributions (NIC) and has so far failed to deny that it may extend NIC to employer contributions to staff pension schemes.  This will be a critical issue for labour-intensive sectors like hospitality and retail, and for SMEs with slim profit margins.  It could make some employers revise their recruitment plans and trim their existing staffing.  It could also make them reconsider their investment plans.”

“We are expecting the Chancellor of the Exchequer, Rachel Reeves, to adhere to previous promises and cap corporation tax at 25% and to retain full expensing of capital allowances.”

“Business rates are a hot topic and Labour has promised to replace business rates with a more equitable system, so some sort of announcement may be made and would be much welcomed by many businesses.  Business rates bills will quadruple in April 2025, if current reliefs end as planned.  For example, inaction would cost the hospitality sector £914 million annually in additional rates bills.”

“When it comes to employment, the Labour election manifesto contained a commitment to increase the National Minimum Wage (NMW) to make it “a genuine living wage” by including cost of living considerations in the remit of the Low Pay Commission (LPC).  The LPC report on the 2026 increases to the NMW is expected to be published at the same time as the Budget.”

“More worrying for the business community are the changes to employment rights the government plans to implement, especially action on zero-hour contracts and the creation of new ‘day one’ rights for employees.”

“Labour has also committed to replacing the Apprenticeship Levy with a more flexible “growth and skills levy”, a formal consultation on which may be published with the Budget.”

“The Labour manifesto committed to a roadmap for business taxation within six months of the election to end uncertainty caused by constant changes.  The Chancellor has confirmed this will be published on Budget Day.”

“The new government has promised to create a formal industrial strategy for the next ten years and to set out proposals for supporting economic growth.  As with the business tax roadmap, this is intended to give businesses some long overdue certainty about government policy, enabling them to invest with greater confidence.”

“Around the time of the Budget, the Government will publish a Green Paper on the strategy, leading to a full strategy document in 2025.  A key feature will be the creation of a National Wealth Fund to invest in new technologies and infrastructure with the aim of driving economic growth, boosting job creation and ensuring food and energy security.”