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In his budget announcement earlier today at 12.30pm on 22nd November 2023, Jeremy Hunt, Chancellor-of-the Exchequer outlined his plans to boost the British economy with a range of changes to the existing public spending budget.
Although prior to the address these were widely expected to be relatively minor adaptations, the new budget contained a couple of surprising and significant policy shifts.
Notably, a Class 4 national insurance (NI) reduction for the self-employed from 9% to 8%, abolition of the Class 2 NI, and making 'full-expensing’ permanent - ''the biggest business tax cut in modern history''. More severe measures to coax people on benefits back into work were also announced.
The first two of these, clearly being made due to the government feeling emboldened by their success in delivering on their promise to halve inflation, which has reduced from 11.1% to 4.6%. And is on target to hit 2% by 2025.
Which the Chancellor cited as an impressive achievement of the conservative government, as well as success in reducing debt and lowering borrowing.
He also claimed that the UK economy has grown faster than many leading world economies since the 2010 recession, with 0.7% economic growth forecast for next year.
He stated that the core aims of the new budget are to ‘’reduce debt, cut taxes and reward work’’, and that the government was ’’making decisions for the long-term’’.
The other main changes and decisions in the Autumn budget include:
- National Living Wage increase - to £11.44 per hour, an increase of 9.8%
- NI reduction - cut 12% rate by 2 percentage points from Jan 6 2024 to 10%, meaning £450 year per extra for an average salary of £35,000
- State Pension increase - by 8.5%, from April 2024, equivalent £221.20 per week
- Increase in UC - by 6.7% from April, or £470 per year for 5.5 million people
- Increase in housing allowance - to benefit 18 million households
- No increase in alcohol duty - on beer, cider wine spirits
- A Pledge to keep growth in public spending lower than growth in economy
- Tougher measures to bring long-term benefit claimants back to work by mandatory work-placements and threat of benefit closure
No doubt this budget will be met with mixed sentiment from the tax-paying UK public and businesses.
The Shadow Chancellor, Rachel Reid, immediately dismissed the budget as inadequate, saying that ‘’nothing announced today will remotely compensate’’ for thirteen years of economic damage.
How will these changes affect UK small and medium sized businesses?
Whatever your view of the Autumn budget is, as a small business owner it’s important to understand what implications positive or negative it could have for your business. Let’s assess them now:
- Business investment
Jeremey Hunt said that the budget would ‘’back business with 110 growth measures’’ with £20 billion of investment. This will include funding for key growth sectors like AI, film, automotive, aerospace, life-sciences, green energy.
To make access to green energy more affordable/accessible, ease the financial burden of development and open up investment opportunities. These plans will tie into the overarching schemes of ‘Levelling Up’ and Net Zero.
- Business tax
Capital Allowance - Full expensing made permanent, meaning the cost of machinery for businesses will remain tax free.
Small business rates relief - a freeze small business multiplier and an extension of the 75% discount (for retail, hospitality and leisure)on business rates for one year. Said to save independent shops over £20,000 next year.
Self-employed taxes reform - class 2 NI paid by self employed with profits over £12,570 will be abolished, saving them £192 per year. Class 4 NI will be cut from 9% to 8%, resulting in a £350 per year saving for 2 million self-employed people.
Freeze on alcohol duty - duty on beer, cider wine spirits will remain as is. Which is good news for hospitality businesses.
R&D tax - The government will introduce a new simplified Research and Development tax relief, combining the existing R&D expenditure credit (RDEC) and the Small or Medium sized enterprise (SME) schemes.
Also, there will be a reduction in the rate loss-making companies are taxed in the new merged scheme, falling from 25% to 19%.
The threshold for additional R&D support for intensive loss-making SMEs (originally announced in the Spring) will be lowered to 30%.
- Legislation
Late payments procurement acts - companies who want to have government contract must show that they pay their bills within 55 days, with a future target of reducing this to 30 days
Reform to planning applications - Local councils will be empowered to recoup the entire expenses associated with significant commercial planning applications, provided they adhere to newly established, expedited processing deadlines.
Should these authorities not meet these timelines, the fees will be automatically reimbursed, and the application will be processed at no cost.
Pension reforms: Workers will now have the legal right to demand that their employer pays their pension into an existing pension pot. Meaning that the employer can no longer choose a scheme to pay into.
Takeaway for SMEs
The Autumn Budget 2023 introduces several impactful changes and initiatives aimed at bolstering the UK economy. Reflecting the government's confidence following their success in halving inflation.
Overall, while the budget might receive mixed reactions, it's crucial for small business owners to understand its implications for their operations and financial planning. It could significantly impact SMEs in the UK by:
1. Reducing financial burdens through lower National Insurance contributions for the self-employed and a freeze on small business rates.
2. Enhancing investment opportunities with a £20 billion injection into key growth sectors, making green energy more accessible and affordable.
3. Providing tax relief with the permanence of full expensing for business investments and a continuation of the alcohol duty freeze, benefiting particularly those in the hospitality sector.
4. Streamlining operations with reforms in planning application processes and late payment regulations, potentially improving cash flow and project execution for small businesses.
If you’re interested in learning more about how to boost your business finances then you’ll love our Crunch’s Knowledge base where we have free expert information on all things SME related.
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