The annual Autumn Statement, where the UK government reveals its economic plan, is just around the corner. On October 30th, the Chancellor of the Exchequer, Rachel Reeves, will share the Labour government’s plans to reduce deficits while hopefully driving economic growth.
As reported by the UK government, the economy contracted in the second half of 2023 but rebounded in the first half of 2024. Growth is expected to continue during the rest of the year at a tepid pace and just over 1% in 2025. It has been widely reported that the government must deal with a funding “black hole” of around £22 billion. The Chancellor has already revealed plans to increase borrowing by about £50 billion. This necessitates “difficult decisions,” which may be extrapolated to mean higher taxes. It is just a question of where the burden will be placed.
The government anticipates that rising income tax revenues and tight spending will resolve the challenges, but not all are on board with this prediction.
One concern is the impact of higher taxes on early-stage firms, which can be more sensitive to increased taxes. Smaller firms and the entrepreneurs who create them are a vital sector of the economy, generating growth and prosperity. Static predictions of higher taxes assessed to increase government revenue are frequently wrong as markets react. Regardless, we will know more next week.
Ahead of the Autumn Statement, Laurent Descout, co-founder and CEO of Neo, shared his thoughts on the budget plans.
“The UK government must continue to support SMEs, which are navigating an exceptionally challenging landscape. Last year saw insolvency rates climb to their highest levels since 1993, underscoring the pressures these businesses face. For SMEs to not only survive but thrive, they need permanent full expensing, clear and stable tax policies and unhindered access to investment,” said Descout. “However, the Chancellor’s proposed blanket increase in Capital Gains Tax threatens this vital investment access. It risks deterring investors from backing small, growing companies in the UK, and potentially hampers start-ups from progressing to IPOs or secondary share sales, as investor reward just won’t be there.”
Hannah Fitzsimons, CEO of Cashflows – a payments Fintech, says there has been a “lot of noise and speculation” regarding the Autumn Statement. Some prognosticators see increased “corporation taxes, capital gains taxes, fuel duty, as well as employer National Insurance and many other pieces of legislation, designed to fill the £22 billion pound ‘black hole’ – the summation for the UK’s businesses is a period of ‘difficulty.’”
“However, where the government has a role to play, as an industry, we also have a responsibility to do more for the business population, especially the small to medium-sized enterprises (SMEs) that form the backbone of our economy,” said Fitzsimons. “We know how difficult the current economic landscape is and how important it is to help SMEs continue to thrive. Businesses must be able to access the funding they need when they need it, but inflexible repayment plans leave many unable to invest in their own growth. That’s why access to funding that allows for repayments directly aligned with sales figures provides a level of flexibility unparalleled by traditional funding, and offers a truly frictionless experience without the constraints of fixed monthly repayments.”
Paul Holland, Managing Director for UK/ANZ Fleet at Corpay, which includes Allstar, believes tax incentives, NOT tax hikes, are superior policies for generating the revenue and growth the UK needs.
“Small and medium-sized enterprises are the backbone of the UK economy. They play a vital role for our economic growth and employment, and in 2023 made up 99.9% of all businesses in the UK and account for over half of all jobs. Clearly, we must be supporting them to evolve and grow, however, we’re expecting all businesses to be impacted on 30th October,” said Holland.
He added:
“This is because the Labour manifesto committed to publishing a roadmap for business taxation within six months of the election, and the Chancellor has confirmed this will come during the Autumn Statement. The headlines are dominated by how to raise funds to fill the £22 billion budget black hole,” he added. “However, with the government already ruling out increases to income tax, employee national insurance and VAT, the Chancellor is likely to look to other areas to generate revenue: employer national insurance, various duties, including fuel, and potentially some sector-specific proposals.”
Holland worries that increased financial pressure could be too much to bear for some SMEs and some may slash employees.
“For example, tax incentives or greater access to finance could be critical areas that could unlock growth and push our economy forward. We strongly advise the government to be thinking in this same frame of mind.”
All questions will be answered next week.