The UK’s Chancellor of the Exchequer Jeremy Hunt made his Autumn Statement today, in what was a hotly anticipated announcement at a critical point for the economy. After a turbulent year in office, Hunt appeared cautiously optimistic announcing inflation in October falling to 4.6%; however, it is still far from the 2% target.
High interest rates, a stalling economy, and geopolitical uncertainty mean that the Chancellor’s statement impacts both individuals and businesses in the UK.
“ A dynamic economy depends on the energy of people…”
In his statement, the Chancellor placed emphasis on growth via business tax breaks and other policy changes that favour an entrepreneurial business model rather than big government. The Chancellor expressed the Cabinet’s intention to maximise business investment as a way to navigate the economy through current challenges. Hunt highlighted the need to reduce government debt and to be prudent with expenditure. He also announced personal tax cuts intended to incentivise individuals’ work.
Key Points
Personal Taxes & Wages
- The main national insurance rate of 12% will be cut to 10% from January 6th.
- Legal Minimum Wage will increase from £10.42 to £11.44 from April, for those 21 and over.
Economy & public finances
- OBR predicts GDP to grow 0.6% this year, 0.7% in 2024, and 1.4% in 2025.
- OBR predicts inflation to fall to 2.8% by the end of next year, and to hit 2% in 2025.
- Borrowing as a percentage of GDP is expected to fall consistently until 2029, with underlying debt expected to increase from 91.6% of GDP this year to 93.2% of GDP in 2026-27, before falling back down to 92.8% in 2028-29.
Business
- The ‘full expensing’ business tax break has been made permanent, allowing companies to deduct 100% of the cost of qualifying plant and machinery from their taxable profits.
- £500 million has been pledged to fund AI innovation centres in the next two years.
- £4.5 billion of funding has been allocated to attracting investment in strategic manufacturing businesses.
Early Stage Company and VC Implications
Extension of the EIS Sunset Clause 😀👍
While the Chancellor did not make any reference to EIS/SEIS verbally, the government declared within the written Statement that it will legislate in the Autumn Finance Bill 2023 to extend the existing sunset clauses for the EIS and VCT schemes from 6th April 2025 to 6 April 2035. This is welcome news to all British SMEs and the venture capital industry as a whole, as it extends incentives to invest in young British companies which will help to boost the UK economy.
Generous Capital Allowances 👍👍😎
The extension of capital allowances will encourage further investment in profitable British businesses, and offers support for SMEs in a climate where their profits are being squeezed by interest rates and higher inflation. This will be partially offset by the minimum wage increase that has been implemented by the government.
R&D Tax Credit Scheme Support 😀👍
From April 2024, the current R&D Expenditure Credit (RDEC) and SME schemes will be merged, making a new simplified tax relief system. The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%. The intensity threshold in the R&D intensives scheme will also be reduced from 40% to 30% of their expenditure for accounting periods that start on or after 1 April 2024, allowing around 5,000 extra SMEs to qualify for an enhanced rate of relief. A one-year grace period will also be introduced, providing certainty for companies who dip under the 30% threshold that they will continue to receive relief for one year.
The Bottom Line
This year’s Autumn Statement comes at a time where the UK needs some faith to be restored in the stability of the UK economy. Rampant inflation and a high interest rate environment have shaken the foundations of the economy. Public investment has undoubtedly taken a hit because of the government’s reduction in spending, with public services in the UK struggling. Critics say the government has not done enough to help working Britons.
It is a time of conflicting emotions: lots to be excited about, with the proposed investment in artificial intelligence having the potential to transform the economy, and position Britain as an AI superpower. There is also potential for the UK to establish itself as a power in terms of business growth with the tax breaks businesses will receive. However, the uncomfortable reality is that many people are struggling to make ends meet, interests are high and GDP growth is uncertain. Geopolitical tensions underly these challenges.
I do hope these measures introduced by the Chancellor on Wednesday will continue to empower SMEs to lead efforts for economic revival. Next year may prove to be a defining moment for the UK, and only time will tell what the impact of this Statement will be.
