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A new economic policy: what does it mean for businesses?

Posted: 28 Sep, 2022

Earlier this month, Liz Truss made her first address to the nation as its Premier and in it, she said she had three priorities: tax cuts to boost the economy, helping with rising energy costs, and sorting out the NHS.

Last week, plans were shared to address two of these priorities and both will have a big impact on businesses.

The Energy Bill Relief scheme

First, details of the Government’s Energy Bill Relief Scheme for businesses were revealed and should be made use of by businesses that are eligible. The scheme will start on 1 October 2022 and end on 31 March 2023. It gives discounted gas and electricity unit prices for those on non-domestic contracts, including:

  • businesses
  • voluntary sector organisations like charities
  • public sector organisations like schools, hospitals, and care homes

To be eligible, your business should be:

  • on a fixed price contract, agreed on or after 1 April 2022
  • signing a new fixed price contract
  • on deemed/out of contract or variable tariffs
  • on flexible purchase or similar contracts

The scheme will help businesses across the country make significant savings and could mean the difference between survival and failure.

Tax cuts for businesses

Then on Friday the new Chancellor, Kwasi Kwarteng, unveiled his mini-budget which included big tax cuts for businesses. He cut stamp duty, slashed employment taxes, scrapped the limit on bankers’ bonuses, swept aside planning rules and said that companies will be able to completely write off investments in plant and machinery. Businesses will also receive “accelerated” tax reliefs for 10 years for structures and buildings, pay no business rates for newly occupied business premises and employers will pay no national insurance contributions on the first £50,000 of workers’ salaries.

Mr Kwarteng also said that next year’s increase in corporation tax from 19% to 25% will be cancelled. It will remain at 19% which means the UK will have the lowest rate of corporation tax in the G20.

During the unveiling, he said this is “an unprecedented set of tax incentives for businesses to invest, to build and to create jobs right across the country”.

The hope is that this will encourage companies to reinvest, create jobs, raise wages, or pay dividends which support pensions. It’s a plan based on trickle-down economics.

Concerns and opportunities

But while the tax cuts and incentives were welcomed by many businesses and business leaders, others worry about the position it puts the economy in. The IMF has criticised the plan and Sir Stuart Rose, chairman of Asda and former chief executive of Marks and Spencer even likened the mini-budget to a bet on a horse race saying that "if it comes in people will cheer but if it doesn't people will be in a very difficult position indeed”. Investors, too, weren’t impressed and the value of the pound plummeted, reaching a record low against the dollar on Sunday night.

While the pound’s value has since bounced up, it remains low, posing concerns for businesses by making imports more expensive. Businesses that rely on materials imported from other countries may need to raise prices to compensate for high costs, putting further pressure on inflation. According to the Office for National Statistics, even before the pound’s plummet more than a quarter of British businesses were expecting the prices of goods they sell to increase in October, citing rising energy costs and the cost of raw materials.

However for some businesses, the weak pound also presents an opportunity. British goods and services now look like good value to overseas buyers and those that can generate revenue elsewhere will earn more when that money is converted back into pounds.

In fact, some net exporting countries such as China even strategize to keep their currency low relative to their major export markets, employing what used to be called the Beggar thy neighbour policy which was popular in the 1930s. But while purposely devaluing currency at the expense of other nations is not a policy the UK does or wants to engage in, while the pound is weak businesses that can should grab the opportunity to export with both hands.

For those that can’t, taking advantage of all the new measures set out but the Government may be necessary to survive.

On 23rd November, we can expect an update when Kwasi Kwarteng will present a ‘Medium-Term Fiscal Plan’ alongside growth and borrowing forecasts from the independent Office for Budget Responsibility.

Turnaround professionals can assist

If your business is struggling amid current market conditions, seek advice as soon as possible. The sooner you do, the more options you will have and the more time you will have to make decisions about your next steps.

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116

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