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Giving back certainty – my hopes for the Budget

Mark Jenkins, finance director at MHR International, reveals his hopes and fears for tomorrow's Budget

Tomorrow’s Budget announcement is possibly one of the most pivotal in history. As the country faces up to its journey out of the pandemic, we cannot ignore the fact that the financial fallout is far from over. Like me, CFOs everywhere are keen to hear what the Chancellor plans so that we can start to consider the economic impact and prepare our businesses for the long recovery.

Hopes and fears for the Budget

Personally, I hope the Budget extends broad support for the economy in the wake of the pandemic. This includes extension of the furlough scheme and business rate holidays, alongside growth stimuli such as National Insurance relief on recruitment, especially in the cohorts most impacted during the pandemic.

A more targeted approach, directing measures and incentives to the sectors most in need, is also required. We have already moved away from the blanket support a year ago, but this direction needs to continue.

Targeted short term incentives are essential. Longer term, systems that are fundamentally broken must be repaired, such as the business rates levied on the high street which needs a root and branch rethink when the time is right. I hope the temptation to boost public funds through tax increases is also stymied for the time being. Even though it is inevitable, timing on tax measures is crucial if we are to avoid stifling growth and investment and putting jobs at risk. I would also like to see the Budget reflect the clearer roadmap we now have towards normality resuming in June. It needs to be gradual steps, otherwise we could see further damage to businesses and the economy that could delay long-term recovery.

CFO impact

Uncertainty is the real business issue right now. As CFOs we consistently use scenario planning to forecast the future but we would prefer to do that with as few variables as possible.  The budget will provide some certainty on elements such as the business employment tax obligations which can impact both profitability and cashflow. It’s our job to do that within the business but we need to understand what the broader economic landscape is likely to deliver so we can plan and forecast accordingly. We need a Budget that is going to confirm those milestones, so that we can accurately forecast demand, growth, and cost base.

The immediate priority for many CFOs will remain the here and now – levels of sales and the effect on future cashflows.  However, long term planning shouldn’t be brushed aside.

Hopefully with a clearer understanding of economic measures this will be possible with a greater degree of accuracy. It also highlights the need for high quality data and systems as a basis for effective scenario planning. A narrow alley requires precise steering; this applies to top and bottom line management, and investment for sustainable growth.

A balancing act

Clearly, Rishi Sunak’s major challenge is stabilisation of the economy and encouraging growth wherever possible. There’s going to be a point soon when the UK must balance the books. Achieving that is a balancing act itself involving a mix of economic stimulus and taxation.

On the taxation front there are clearly many options. I maintain, harsh tax rises now are risky as they will reduce business’ investment opportunities. They will come but I hope not until the Autumn statement. We do have to pay for the cost of the pandemic at some stage, but UK PLC cannot afford to right now.

Corporation tax is the obvious target and will happen at some point soon. It is estimated that a 1% increase in the Corporation Tax rate will elicit £2bn in tax revenues. That begs the question, how can CFOs prepare for growth while shouldering higher costs and potential drains on working capital? The answer is we must find ways of working smarter and more efficiently while reducing waste, both financially and in resources terms.

CFOs need sustainable plans and strong analytics

Data sits at the heart of the matter. We can’t simply respond to the Budget by trying to do the same but cheaper or increase revenue. Reductions in costs cannot impact quality or timeliness of products or services and where would the increases in revenues come from?  With the sustainability agenda and the pandemic we have the perfect storm to address our business’ sustainability in its broadest sense. This will involve deep data analysis to make fundamental changes to processes.

Scenario planning and modelling is critical in allowing CFOs to have control of both working capital and profitability, both of which are critical for a sustainable business. Every change the business considers must be tested for financial rigour before it is implemented.

This involves frequent re-evaluation of strategy; modelling and trying different scenarios as the future unfolds. I’m lucky to work for a business that provides business analytics tools. MHR Analytics has helped me implement sophisticated Planning Analytics and Financial Workforce Planning tools. This has allowed us to model financial scenarios through 2020 and into 2021 and make frequent changes to strategy, as well as keeping a close eye on the lifeblood of any business – cash.

In terms of the outcomes from the Budget, analytics and business insight will be crucial for modelling cost reductions or increases to quantify the effect on profit and cash flow, while data modelling and financial planning tools can plot the potential effects of small changes to taxes or duties.

Whatever we see tomorrow, I hope above all that Sunak brings us some certainty – as much as he can give – of what the future holds. That will give us the basis on which to evaluate and model the future of our businesses.

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