UK government mini budget focuses on business growth

The mini budget unveiled Friday by UK Chancellor of the Exchequer Kwasi Kwarteng includes cuts or a halting of planned increases to tax rates for businesses and individuals.

The announcement followed Thursday’s statement that the National Insurance increase will be reversed from 6 November as part of the government’s “pro-growth agenda”. A government statement says that 920,000 businesses are set to save almost £10,000 on average next year and will see a cut in National Insurance bills, with 20,000 taken out of paying National Insurance entirely due to the Employment Allowance, which rose in April 2022 from £ 4,000 to £5,000.

“Many small and medium businesses (SMEs) — who employ over 13 million people in the UK — will see a cut to their National Insurance bills,” the Thursday statement said. “Next year this will be worth £4,200 on average for small businesses and £21,700 for medium-sized firms who pay National Insurance.” In total, the government said, 905,000 businesses will benefit from 2023-2024.

Kwarteng said the corporation tax rate, planned to increase to 25% in April 2023, will remain at 19%. He said that the move was part of a “need to be unapologetic” about creating economic growth.

“Cutting tax is crucial to this,” Kwarteng said. “And whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors, or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”

Andrew Harding, FCMA, CGMA, chief executive–Management Accounting at the Association of International Certified Professional Accountants, representing AICPA & CIMA, called for the creation of Individual Savings Accounts (ISAs) for SMEs. “One key area is helping SMEs grow through investment,” he said in a statement in response to the budget announcement.

Harding explained that ISAs would “simplify the existing government support schemes for SMEs.”

The Growth Plan 2022 makes growth the government’s central economic mission, setting a target of reaching a 2.5% trend growth in gross domestic product (GDP), by launching supply-side reforms and cutting taxes for businesses.

“The UK is facing very tough economic circumstances with inflation being among the highest of the G7. … The government will need to set out a bold response if they are to meet their growth targets and deliver on their plans,” Harding said.

Economic and fiscal context

The plan states that “maintaining fiscal sustainability in the medium term is essential to provide the confidence and stability to underpin long-run growth”. The government is committed to fiscal discipline and will provide an update on its medium-term fiscal plan at the next fiscal event. This will build on three key pillars:

  • A clear commitment to fiscal responsibility and reducing debt as a proportion of GDP over the medium term: The chancellor commissioned the Office for Budget Responsibility to produce a forecast to be published by the end of this calendar year. The government will provide an update on its position on the fiscal rules alongside the next forecast.
  • Taking the responsible decisions needed to achieve this, including keeping spending under control: Departments will focus on deploying their existing budgets on the government’s top priorities and continue to find ways to work more efficiently and to drive economic growth through their spending.
  • Maintaining strong institutions and frameworks: The government will review the spending control framework, including the business case process, to accelerate decision-making across government.

Harding said that early indications of research being undertaken among members on the impacts on inflation and strategies to manage in this environment show concern about “the resilience of UK supply chains and the additional price pressures to their already hit bottom lines caused by increased tax on businesses .”

Tackling energy prices, addressing regulation

The UK government will introduce the Energy Bill Relief Scheme (EBRS). This temporary six-month scheme in Great Britain will protect businesses and other nondomestic energy users, including charities and public sector organizations, from rising energy bills this winter by providing a discount on wholesale gas and electricity prices, the statement said.

A parallel scheme will be established in Northern Ireland that will be based on the same criteria and offer comparable support, whilst recognizing the different market fundamentals.

The government said it will reduce barriers caused by unnecessary and excessive regulation to allow businesses to realize their potential. Later this autumn, the government will bring forward a set of regulatory changes to support higher economic growth.

The statement said the government will also embed tax simplification into the institutions of government, abolish the Office of Tax Simplification, and set a mandate to HM Treasury and HMRC to focus on simplifying the tax code.

“The government should outline their tax and regulatory plans for the next two years and quickly provide more details on what will happen to businesses on their energy support scheme after the first six months,” Harding said. “This would give businesses a solid framework to base their medium-term investment decisions on.”

— To comment on this article or to suggest an idea for another article, contact Steph Brown at [email protected].

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