UK Budget snapshot for CFOs

The UK’s economic forecast paints a cautious picture.

With inflation expected to settle at 2.8% by next year’s end and growth crawling at 0.6% in 2023, the stage is set for a challenging financial landscape. Debt, like a shadow, looms large, projected to rise to over 91% of GDP.

Today (November 22), Chancellor Jeremy Hunt’s announcements, while anticipated, carried within them the weight of impending change, charting a course for businesses and the workforce alike in the face of economic headwinds.

Wage increases

Among the measures announced today was an increase in the minimum wage, rising to £11.44 per hour. Businesses have until April 2024 to comply.

This wave of change, affecting workers over 21, requires CFOs to adjust their financial rigging, accommodating increased payroll costs while maintaining operational efficiency.

In tandem, the government’s tightening grip on welfare benefits for non-active job seekers marks a determined effort to steer more individuals back into the workforce, a move that could ease the burden on sectors facing labour shortages.

While benefits will increase by 6.7% in line with September’s inflation rate, effective from April, job seekers’ benefits will be removed for job seekers who are not actively seeking work.

Moreover, the local housing allowance rate will increase, providing an average of £800 support to 1.6 million households next year.

Tax and national insurance revisions

The Chancellor’s statement alters the winds with tax and national insurance adjustments.

National insurance for employees has been cut by 2 percentage points, impacting about 27 million workers. For the self-employed, Class 2 national insurance has been abolished, and Class 4 national insurance is reduced from 9% to 8%.

But it is the increase in the main corporation tax rate to 25% that commands attention. This shift in fiscal policy, departing from the pursuit of low corporation tax rates, signals a new strategy – one that seeks to promote investment through alternative means.

As CFOs, the challenge lies in recalibrating our tax strategies to harness these changes effectively, ensuring that our vessels remain competitive and compliant in these shifting tides.

Investment and business incentives

The introduction of the ‘full expensing’ policy and the establishment of Investment Zones heralds new opportunities. The new expensing policy allows 100% capital allowances on qualifying plant and machinery expenditure until 1 April 2026.

The investment zones, focused on sectors like green industries and digital technologies, offer enhanced tax reliefs and incentives, beckoning CFOs to explore new territories for investment and growth.

The government’s commitment to supporting loss-making R&D intensive SMEs further encourages innovation, particularly in sectors like pharmaceuticals and life sciences.

The government also intends to implement the OECD Pillar Two rules for a global minimum corporation tax rate for financial years starting on or after 31 December 2023.

Other notable measures

• State pension payments will rise by 8.5%.
• £500m investment over two years in innovation centers for AI.
• A new, simplified tax relief for research and development.
• Extension of a 75% discount on business rates for certain sectors.
• Alcohol duty freeze until August.
• Measures to tackle antisemitism in education and support for veterans.

Looking ahead with caution and opportunity

As businesses chart their course into 2024, the Autumn Statement presents both challenges and opportunities for those in the C-Suite.

Budgeting and forecasting need to be adjusted in light of the new economic projections and tax changes. The increase in minimum wage and benefits will impact payroll costs. Changes in national insurance and corporation tax rates require updating tax strategies and compliance processes.

Investment decisions may be influenced by the new incentives, especially in qualifying expenditure for full expensing and the establishment of Investment Zones. The introduction of the OECD Pillar Two rules necessitates a review of international tax obligations.

The economic forecast necessitates a cautious approach, with a vigilant eye on inflation and growth projections. The rise in minimum wage and changes in tax and national insurance require agile adjustments in financial planning.

Yet, amidst these challenges, opportunities for investment and innovation beckon, promising new horizons for those willing to navigate these waters with foresight and strategic planning.

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