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A future positive Autumn Budget

Is it time to focus on innovation?

Paul Surtees Oct 28, 2021

The Chancellor, Rishi Sunak, delivered his Autumn Budget & Spending Review on Wednesday 27 October to an expectant House of Commons. There’s no denying that the past 18 months of the pandemic have placed exceptional and unique challenges in the way of managing the country’s economy. But what has the Chancellor done to try and turn around these fortunes? And, more importantly, what is the impact likely to be for your business?

Paul Surtees, Capitalise CEO, and Kirsty McGregor, Capitalise’s Accountant-in-residence and Chairman of The Corporate Finance Network, review the key announcements and ask if they’re enough to truly drive innovation and prosperity.

 

Building a high-wage, high-skills economy

No-one could accuse Rishi Sunak of not being ambitious. His Autumn Budget speech was informed by an exceptionally clear vision for building a ‘stronger economy for the future’. Private businesses will play an integral part in making this plan work, providing the stability needed to drive UK GDP up, to fund our public services and to provide better prospects for the UK’s hard-working families, as he explained in the introduction to his speech:

"This Budget is about what this Government is about. Investment in a more innovative, high-skilled economy, because that is the only sustainable path to individual prosperity. World class public services, because these are the common goods from which we all benefit.

Backing business, because our future cannot be built by government alone but must come from the imagination and drive of our entrepreneurs.”

The Government’s aim is to build strong recovery via a concerted drive for enterprise, growth and innovation, creating the kind of high-wage, high-skills economy that will drive a more stable, predictable and productive economy. 

It’s an admirable plan, and one that puts a significant amount of responsibility onto the UK’s business owners, entrepreneurs and employers. Conservative policy has gradually been to reduce the emphasis on state support and taxation and, instead, to reinforce the ideas of community-based support, family assistance and personal responsibility. But is the average employer, and their hardworking workforce, in a position to aspire to this at present?

What was needed from the Autumn Budget was a raft of measures to help your business clients in the here and now – to help them overcome the supply chain issues, rising fuel costs and higher costs of raw materials that they’re currently experiencing.

So, did Rishi deliver?

 

The key Autumn Budget Announcements for UK businesses

 

If there’s a criticism to be made of the Autumn Budget 2021 speech, it’s that it was high on ambition and low on actual detail. The underlying themes of strong private enterprise, innovative use of the UK’s raw talent and the provision of world-class public services are all admirable. And, at Capitalise, we applaud the future positive outlook that some Budget measures have the potential to deliver.

However, looking over the key takeaways for business owners, there’s not a huge amount to rectify the ongoing set of challenges faced by your clients:

 
  • No focus on tax reform - there was no reform of the major business taxes other than confirmation that there is to be a messy change to basis periods for income tax, which was hidden away in the small print. There were no changes to corporation tax (still due to rise to 25% from April 2023) or to VAT, although this is more likely to be addressed again in the Spring. And despite concerns that capital gains tax (CGT) may be reformed there was no mention of any changes to the current system for CGT.

  • Business rates – there wasn’t a complete overhaul of business rates as hoped for, but there are more rate reliefs to make it easier for some businesses over this period of recovery – good news for companies who can invest in property improvements which will improve their building’s green credentials, such as solar panels. In addition, a 50% business rates discount will be introduced for one year for businesses in the retail, hospitality, and leisure sectors, up to a maximum of £110,000 per business.

  • Property – building more housing will be crucial over the coming years, so the Chancellor promised £24bn in investment for housing, with brownfield sites targeted for development as a means of easing the ongoing housing crisis. Larger residential property developers with profits over £25m will need to factor in a new 4% levy that will be used to help create a £5bn fund for removing unsafe cladding from existing buildings and social housing. 

  • Regional investment – Funding is being increased for both the Scottish, Welsh and Northern Irish governments and a ‘Levelling Up Fund’ of £1.7bn will be created to help provide investment in various local areas across the UK. This desire to reinvigorate enterprise and industry outside of the main economic centres is a key part of the Chancellor’s plan and, along with the previously announced UK Infrastructure Bank, Shared Prosperity Fund and Freeports, will aim to create new jobs in areas of high unemployment.

  • Alcohol duties – the current system of alcohol duties is to be simplified and made fairer. The highest rates will now be paid on the strongest spirits, wines and beers, and a new Draught Relief will apply a new, lower rate of duty on draught beer and cider. This is all good news for any clients in the drinks sector and for the UK’s pubs, who have suffered greatly during the pandemic and enforced lockdowns. 

  • Fuel duty – the planned rise in fuel duty is to be cancelled, a move that seems sensible given the current fuel crisis and the need to help businesses and consumers overcome the current high fuel prices and supply issues.

  • R&D reliefs and investment in science  – the Chancellor announced £22bn investment in research and development (R&D) to help drive innovation by UK companies, as well as changes to the scope of the R&D tax credit scheme to include cloud and data costs, but from 2023 to exclude costs spent overseas. This sits alongside a pledge to raise core science funding to £5.9bn a year by 2024-25, a move that puts science and technology at the forefront of Rishi’s plans.

  • Recovery Loan Scheme - not included in the Chancellor’s speech to Parliament, but hidden away in the small print of the Red Book, was confirmation that the government-backed Recovery Loan Scheme would be extended from 31st December 2021 to 30th June 2022 – albeit with the Government only providing a 70% guarantee to lenders from the new year. This move means that businesses who want to ensure the best terms possible for their capital needs, should look to act now to secure preferential rates based on the current lower-risk scenario for lenders.

 

Making R&D relief a more practical option for UK businesses

If there’s one thing that stands out loud and clear from the Autumn Budget, it’s the major part that innovation and R&D will play in Rishi’s plan. For levelling up to work, for high-skilled jobs to be created and for private enterprise to help the economy grow, UK businesses will need a razor-sharp focus on innovation. 

As the Chancellor set out in his speech, amending the R&D tax credits system is one way to make R&D funding easier and more effective:

 

"If we want greater private sector innovation, we need to make our research and development tax reliefs fit for purpose. The latest figures show the UK has the second highest spending on R&D tax reliefs in the OECD. Yet it’s not working as well as it should: UK business investment in R&D is less than half the OECD average.”

 

To rectify this, the changes to the scope of the relief (see above) will make it easier for UK businesses to qualify and to claim against their R&D costs for inbound investment.

So, if you have clients that have previously been unable to claim for the full amount of their R&D costs, there’s an opportunity here to make better use of the tax credit. 

Talk to us about funding your focus on innovation

There’s a big hill to climb when it comes to turning around the UK’s economic fortunes and achieving the key aims of the Chancellor’s plan for a stronger economy. But, there are measures in the Autumn Budget that can help push your clients in the right direction, even if they don’t solve all of the current challenges they face as we head into 2022 and beyond.

If your clients are planning on ramping up their innovation, or have an R&D project in the works, now’s the time to look at their  funding options.

At Capitalise, we have access to a network of 100+ different lenders and business funding specialists. And we can quickly match your business clients up with experts in innovations funding and/or R&D tax reliefs.

 

To check out the full conversation you can see it here

Get in touch for a chat about funding your clients’ innovation and R&D funding.
 

Call us on 020 3696 9700 or email us at support@capitalise.com

 

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