Mini Budget Update

Ante Up & Trickle Down

It’s been a while since I’ve blogged, so I thought it was time to put pen to paper, as it were. 

The meme many of you will have seen prompted me into action. The one that goes: my four-year-old has lived through three prime ministers, a pandemic, Brexit, a European war and two monarchs! Put like that; it’s clear we’ve all been through turbulent times. As the father of two young children it struck a chord with me.

And Friday last, we saw the latest deviation from the norm. A mini-budget from Chancellor Kwasi Kwarteng that shredded the economics rulebook and presented an audacious and perhaps precarious plan for the UK economy. 

Welcome to Trussonmics, everyone!

While we can’t ignore the many fiscal implications, some areas in the statement will hearten small businesses to some extent. This is especially true if we broadly agree with the core theme of Kwarteng’s strategy. That of promoting annual economic growth rates of 2.5%.

So, to add to the chorus of commentary, here are my thoughts on this latest political missile.

The Upside

Energy

While not part of the statement, energy prices are a source of existential concern to small businesses, particularly in hospitality. Businesses now have a reprieve from eye-watering increases in fuel bills. From October 1st, a Government subsidy will fix wholesale gas and electricity prices for six months. To say this is welcome would be an understatement, but how we can plan variable costs for when the scheme ends remains a worry.

IR35

The government is scrapping the controversial changes to IR35 from April 23rd. Do I hear the sound of thousands of freelancers cheering? They can return to managing their tax affairs using a personal service company, no questions asked. But will this make them compliant with the spirit of the IR35 rules? Maybe not. Best not to worry about it and move on!

NI & Corporation Taxes

These planned rises have been binned. The previous employer and employee NI rates will return from November, and the corporation tax increase to 25% has gone. Larger employers will welcome these, and they do look good as headlines. But let’s not forget they only take us back to where we were previously, and corporation tax only applies to businesses making over £50K in profits. So it won’t affect most of the UK’s 5.6 million SMEs anyway.

Investment Zones

This is a plan for thirty-eight local and mayoral combined authority investment zones offering targeted and time-limited tax cuts for businesses. The zones aims are to increase productivity and create jobs. I have questions: What kind of investment? What size and type of business? Where will they be? How will they work? How many jobs do they need to create? What does time-limited mean? We’ll know more later, and there may indeed be opportunities, so watch this space. 

Tax Simplification

Removing the 45% tax band for those earning over £150k would always divide opinion. It gives already wealthy people a boost but looks terrible during a cost of living crisis. However, I’m going to take a more measured view. The UK needs wealth creators to achieve 2.5% annual growth, so encouraging successful people to stay in the UK is crucial. And that will include a good number of successful SMEs who are powering on now the shackles of Covid etc., have been removed. The optics may be bad now, but the benefits should become apparent in the long term.

Economic Suicide?

Kwarteng’s plans were widely criticised. And it wasn’t just economists who made their judgements. Even as he spoke, the currency markets gave their verdict as the pound headed south against the dollar. Without a recovery in the pound, we’ll be importing price inflation and paying more to cover sovereign debt. 

There’s even some doubt the UK may be able to raise the over £100 billion required to finance these measures.

The risks from inflation, overheated housing markets (due to cuts in stamp duty), interest rate rises and ballooning national and consumer debt hang heavy now that the dust has settled. 

It will be an interesting few years ahead, especially in the run-up to the next general election and as the government’s free-market ambitions supplement these policies further. Employee rights, fracking, environmental concerns, anyone, anyone? 

Reasons To Be Cheerful

Despite everything, I’m going to be optimistic here. Yes, there’s risk, but if we’re going to thrive as a country, then we need to be bold. That means supporting businesses of all sizes, encouraging investment, innovating, and rewarding hard work. If we can get these things right, we may eventually reach the oft-mentioned ‘sunlit uplands’.

Otherwise, the only people celebrating will be investment bankers in the square mile. They will be splashing their undeserved 200% bonuses on vintage champagne as they bet against the UK economy and win big.

So let’s see, shall we?