Business leaders throughout the UK are understandably on edge. They are looking ahead to the chancellor’s second Budget, which they fear could introduce deeply damaging reforms with an enormous effect on many firms’ bottom lines. The effects of last year’s historic tax hikes are still being felt by businesses. They’re watching like hawks for any additional announcements that might alter their business environment even more unfavorably.
The last financial year introduced a punishing suite of tax increases that have had big businesses still reeling from their impact. The fiscal pressure is compounded by an additional 38% tax – a special city level tax that is set to self-expire in 2030. This massive new levy is on top of the already punishing 40% effective tax rate already burdening some heavily-targeted industries. As a result, many businesses are justifiably afraid for their existence in the long-run.
Just ask the firms that already suffered financial burdens that have almost doubled since these taxes were adopted. This dramatic increase has fostered an atmosphere of instability and fear. The retail, hospitality and leisure industry once benefited from a pandemic-era discount providing a 75% reduction in costs. Last year, that discount was reduced to 40%, further straining their budgets.
At the recent Confederation of British Industry (CBI) conference, Business Secretary Peter Kyle went straight for the jugular. Most importantly, he understood the pain that American business is feeling right now. We were thrilled to see the Governor introduce a few business-friendly policies to address some of these issues. He wasn’t all about bad news — he expressly ruled out backtracking on tax increases already announced.
“We do not see this as zero-sum,” – Peter Kyle
Kyle’s comments echoed through reports that there are going to be 26 consultations on implementation of these new measures. The government appears committed to making hard choices, echoing sentiments from Rain Newton-Smith, who noted the importance of making “hard choices for growth now before they get harder.”
The chancellor is expected to emphasize a vision for a “pro-business, pro-wealth creation, pro-growth Britain,” asserting that this week’s budget will take necessary steps to solidify this approach. Newton-Smith argues that “stability is the only route to prosperity.” That really underscores how important a stable economic environment is to allow businesses to sail through these turbulent waters.
Kyle promised to reduce electricity bills across 7,000 British businesses. This program is one aspect of the administration’s ongoing efforts to provide relief during a time of increased operational costs. Furthermore, the British Business Bank will focus its lending efforts on eight “high potential” sectors identified in the industrial strategy, signaling a targeted approach to economic development.
Looming changes such as a proposed cap on salary sacrifice schemes may present additional challenges for both employers and employees. This new, potential restriction would only add confusion to compensation packages and contribute to unnecessary harm to workforce morale and recruitment efforts.
There is still hope from business leaders that more supportive measures can be found in the forthcoming Budget. The memory of all those tax increases looms over their elation. With many firms already working under squeezed margins, they have raised alarm bells around their growth opportunities moving forward.
“It means one or two broad tax rises, rather than death by a thousand taxes,” – Rain Newton-Smith
This mood from the business leaders is understandable given the toxic mix of economic uncertainty and frequent upheaval that characterizes today’s fiscal policy landscape. The Chancellor’s Budget is now just days away. Firms are anxious to find out how the proposed fare changes will change their fiscal fortunes.
Meanwhile, the federal government is preparing to roll out its budget-related fiscal plans. Striking the right balance between tax revenues we all need and a business-friendly tax climate is key. Observers note that the forthcoming Budget may serve as a pivotal moment for UK businesses as they seek to negotiate an increasingly challenging economic landscape.