What is the budget for a stronger economy?
As a business community, we’ve endured 18 months of unprecedented challenges to get through the ongoing pandemic. And when you factor in the additional impacts of Brexit, supply chain issues and rising costs in the market, it’s easy to see why the recent Autumn Budget & Spending Review 2021 was so eagerly awaited by business leaders.
So, has the Chancellor, Rishi Sunak, delivered a Budget for a stronger UK economy? A Budget that will help UK SMEs overcome our current obstacles and set us on the path to strong and stable recovery?
A focus on innovation and investment
The main thrust of the Chancellor’s plan has been to focus on building ‘a stronger economy for the future’. Growth for 2021 has been revised up from 4% to 6.5% and the Office for Budgetary Responsibility (OBR) expects the economy to grow by 6% in 2022, and 2.1%, 1.3% and 1.6% over the next three years. That’s a reasonable forecast, but how will this growth be achieved?
On the whole, the Chancellor’s plan for growth involves a strong focus on innovation, science and investment in both regional expansion and the future of R&D in the UK.
Key measures include:
- Business rates – the business rates system has been reformed, reducing some of the financial pressures on companies that are trying to build sustainable recovery. Businesses will be able to invest in improvements to their premises and won’t see a rise in business rates for a year, allowing extensions, green improvements and upgrading of the premises without penalising these upgrades. There’s also a 50% business rates discount for businesses in the retail, hospitality, and leisure sectors. This will be introduced for a year up to a maximum relief of £110,000 per business.
- Regional investment – the Chancellor announced a ‘Levelling Up Fund’ of £1.7bn that will be used to encourage investment and enterprise in local areas across the UK. Overall funding will also be increased for the Scottish, Welsh and Northern Irish governments as part of the plan to ‘level up’ the economic and industrial landscapes across the whole UK. Measures previously announced in the Spring Budget 2021 will also help to support this investment, including the UK Infrastructure Bank, Shared Prosperity Fund and Freeports.
- R&D reliefs and investment in science – £22bn of investment in research and development (R&D) was announced, with changes to the scope of the R&D tax credit scheme. The relief will now include cloud and data costs, to reflect how companies carry out development in the digital age. And, from 2023, the relief will exclude costs spent overseas, to keep investment focused on domestic UK projects. The Chancellor also pledged to raise core science funding to £5.9bn a year by 2024-25, providing further investment for science, technology and innovation.
- Recovery Loan Scheme extension – one very welcome announcement that was hidden away in the small print is an extension of the Recovery Loan Scheme. The scheme will now be extended until 30 June 2022, rather than closing in December. Having access to this route to funding for a further 6 months opens up more opportunities to borrow at very attractive rates and to source the working capital needed to kickstart full recovery and growth. The only significant change to the scheme is that the Government will now only provide a 70% guarantee to lenders from 2022, so there’s an incentive to make use of the scheme sooner rather than later.
- Minimum wage increases – a rise in the minimum wage will be good news for working families on low incomes, but will obviously result in higher payroll costs for employers. The new national living wage rate will rise from £8.91 p/h to £9.50 for workers over 23 years old, from 1 April 2022. The national minimum has also been increased, with employees aged 21-22 seeing an increase to £9.18 p/h, and apprentices (aged 16 and over and not in full-time education) rising to £4.81 p/h.
- Other measures – a raft of measures were introduced in the Chancellor’s speech, with the other announcements including:
- An extension of the £1m Annual Investment Allowance (AIA) to March 2023.
- Simplification of the current alcohol duties and a new Draught Relief for draught beer and cider to help the struggling pub industry.
- The planned rise in fuel duty has been cancelled, to combat rising fuel costs.
- Air passenger duty for domestic flights has been lowered.
- £24bn of investment in housing was announced with £11.5bn for affordable homes, with brownfield sites targeted for development
- A 4% levy will be placed on larger property developers to help create a £5bn fund to remove unsafe cladding.
Talk to us about the Budget impact for your business
This was a Budget with lofty ambitions and a plan for building a stronger economy. How these new measures will be paid for remains to be seen. We’d like to have seen more to tackle the issues that UK SMEs are facing in the here and now, but there may well be more legislation and changes in the March 2022 Spring Budget.
If you’d like to talk through the potential impact of the Autumn Budget for your business, please do get in touch. Schemes such as the Recovery Loan Scheme and the R&D Tax Credits system are open to qualifying businesses and may well be a positive route to enhanced funding.
Get in touch to discuss the Budget.