Abdulkader Nahhas and Doyin Babajide, Lecturers In Economics at the University of Derby, give us a round-up of how the Autumn Budget could affect businesses.
The Chancellor of the Exchequer, Philip Hammond, laid out the plans for the UK economy in the Autumn Budget 2017 delivered on 22 November 2017.
Mr Hammond said he would use the Autumn Budget 2017 to ‘look forward, embrace change, meet the challenges head on and seize opportunities for the United Kingdom.’
The Chancellor emphasised that the government listens to small and medium enterprises and indicates continued support.
Below is a brief summary of how the Autumn Budget will affect small and medium-sized companies:
The state of the economy
The UK’s growth forecast has been slashed from 2% to 1.5 %. This is a clear indication of the economic uncertainty which the country is facing as we get closer to exit from the European Union.
GDP reduced to 1.4%, 1.3 % and 1.5 % in forthcoming years before rising to 1.6 % in 2021-2022.
There is an expectation that Brexit will have a negative impact on the economy. Thus, the Budget is a missed opportunity to provide reassurance to small and medium businesses (estimated to be about five-million owners), who make up the most critical part of the economy.
The next two years could see investments reduce due to the low growth forecast and the uncertainty of Brexit. Businesses may lose more on exports and foreign income with the economic forecast. However, the Chancellor has promised to set aside £3 billion in the event Britain comes out with a ‘no deal’ Brexit.
The government remained committed to cutting taxes to help respond to the short-term inflationary pressures. The budget reaffirms the government’s commitment to keeping taxes low and stable. Businesses will be supported to invest more due to the R&D grant increasing from 11% to 12%.
In light of the recent rise in inflation, over the next five years the government is willing to provide a further £2.3 billion of support to businesses. Clearly, this will increase investment that retailers want to direct towards their customers’ needs. This move would help the UK’s small businesses.
Corporation tax is at its lowest at 19% and is still the lowest in the G20 countries, this signifies that government is adhering to its commitment on supporting businesses.
SME’s will benefit from the budget by paying low corporation taxes and VAT which should help increase investment. The lower business rate should also improve profitability. However, there is a rise in NIC which might put an additional burden on SMEs.
The VAT threshold will be the same as the current £85,000 for at least two years. As the current threshold is high, the threshold keeps some small businesses out of VAT registration.
Federation of Small Businesses (FSB) welcomed Hammond’s decision not to change the threshold. “Small firms spend more than a working week a year complying with VAT obligations on average. It’s time that should be spent growing their firms” FSB’s chairman Mike Cherry said.
From April next year, business rates will be indexed to the Consumer Prices Index (CPI) measure of inflation rather than the higher Retail Price Index (RPI). This change was planned for 2020 but according to the budget it will be brought forward to 2018, which could see rates reduction of around 1%. This should help SMEs boost production of goods and services.
The increase in the personal allowance for income tax from £11,500 to £11,850 and £45,000 to £46,350 for higher rate taxpayers from April 2018 should increase consumer confidence and spending. Consequently, this should encourage an increase in production of goods and services. However, further increases in the minimum wage will put pressure on employers, especially those in the retail sector. These employers have seen wage (labour) costs rise recently because of concerns about the labour supply due to Brexit and this increase could lead to job reduction.
Housing (stamp duty)
Stamp duty to be abolished from today for first-time buyers purchasing properties worth up to £300,000 is a welcome relief for some.
However, that would raise house prices next year, if building more new homes is restricted or limited. So first-time buyers might save in stamp duty but that saving will be reduced because they have to pay more for the property. Also, if real wages are falling and property prices remain high, the possibility of saving a few thousand pounds on stamp duty will not do a lot to help would-be buyers save enough for a deposit.
Overall, the economy’s growth projection is realistic and the government is right to have slashed the growth forecast. The exogenous factors surrounding Brexit means the economy could be hit really badly or marginally. In the event of which scenarios occur, it is safe to assume the plans currently in place via this budget will stabilise the economy. By the next autumn budget, there should be more certainty about Brexit and the terms involved.