How the Autumn Budget Impacts Struggling Businesses

After previously insisting in the weeks prior that tax cuts were “virtually impossible” owing to the state of the UK’s current finances, Chancellor Jeremy Hunt unveiled several tax cuts in his autumn budget. Instead of the widespread celebrations Hunt may have hoped as a reaction to his announcement though, the news was met with a mixed reaction from many.

Businesses that are still reeling from COVID-19, the cost-of-living crisis, and the Russian invasion of Ukraine will find only the thinnest sliver of comfort in the chancellor’s announcement. While any cuts are always welcome, The UK’s distressed companies can be forgiven in thinking that they’re the least that could have been offered.

One of the headline-grabbing changes is a 2% reduction in National Insurance rates from 12% to 10%. Hunt explained that the National Insurance reduction “means someone on the average salary of £35,000 will save over £450 a year”. This is unlikely to translate into a surge in consumer spending however, but the discarding of class II National Insurance for the self-employed will ease business owners’ concerns at least slightly.

Making full expensing permanent is a boon for businesses enjoying some success, but struggling firms are unlikely to be able to utilise this scheme. The policy allows companies to enjoy a 100% deductible allowance on equipment that allows for business growth. This results in businesses effectively receiving in-year tax reductions of up to 25% for the expenditure of large parts of their manufacturing plants and similar.

The hospitality sector has been one of the industries heavily impacted by the current socio-economic climate. With operating costs high, and customers tightening their purse strings, businesses such as pubs, restaurants, and nightclubs have been closing at an alarming rate. For those involved in the sector, all eyes were fixed on what the chancellor would do with business rates.

Hunt had previously announced a temporary 75% discount in business rates for hospitality-based businesses back in 2022 which was due to end in March 2024. Thankfully, that reduction has been extended for another year, but the hope within the sector was to see this made permanent, or to see cuts in VAT made. The extension will provide a sigh of relief for those worrying about March 2024, but the sense is more a stay of execution rather than safety. With little change in the economic climate, the date may have been changed slightly, but the worry remains.

With recent news suggesting that almost two thirds of UK distillers plan to scale back their production after Hunt’s spring budget raised spirit duty by 10.1%, the freeze on alcohol duty will assuage the fears of distillers nationwide. Another rise so soon after the last would have had the potential for multiple closures in an industry that had experienced growth until recently.

The budget also saw the announcement of a record rise in the National Living Wage. The minimum hourly rate that those who qualify can now be paid has jumped by over a pound, from £10.42 to £11.44. This will rock industries that typically employ workers on, or close to, the National Living Wage, as well as those with younger workforces. The lower age threshold for qualifying for the National Living Wage has been changed to 21 rather than the previous 23, making those aged 21 and 22 £1.26 better off per hour.

While the rise in wages will undoubtedly hit some businesses hard, it’s also not expected to have a positive effect on spending in 2024 either. Fresh RHDI (real household disposable income) forecasts released after the budget by the Office for Budget Responsibility suggest that disposable income is set to fall 3.5% lower in 2024-25 than it was before the pandemic.

With so many factors in play, it can be difficult to see where struggling businesses will see a tangible upturn in fortunes. Many though, will simply be thankful not to have seen further hikes in operating costs. For businesses doing well, the budget may be well-received. On the other hand, however, those experiencing financial distress are unlikely to see the announced changes improve their prospects.

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