Everyone has an opinion on what UK Chancellor Rishi Sunak should do to boost business and stimulate the economy in tomorrow's (Wednesday, 3rd March) crucial Spring UK budget.
The UK economy faces numerous critical issues: what can be done to help UK businesses survive through the COVID-19 pandemic and associated lockdowns, how to promote business growth, move on from Brexit and forge new trade deals… and where is the money coming from to finance it all?
Most vital British Budget for years
With such tough questions being asked, the Chancellor faces the most vital British Budget for years. The most difficult issue is how to pay back the £271 billion that the government has borrowed this year – £222 billion more than last year – to support businesses through the Covid-19 pandemic. This has increased the national debt to £2.13 trillion or more than 99% of Gross Domestic Product.
In an illuminating pre-Budget survey of 500 UK business leaders, iResearch Services finds there is broad backing for Rishi Sunak’s policies to help companies combat Covid-19, as well as possible Corporation Tax rises in the Spring Budget to raise money towards balancing the books.
Rise in Corporation Tax ‘fair’
Most of those surveyed (54.4%) say a rise in Corporation Tax would be fair, while 37% disagree and 8.6% are unsure.
CEO of iResearch Services, Yogesh Shah, says, “Rishi Sunak needs to find a tricky balance in the Budget between keeping the economy running, supporting UK businesses of all shapes and sizes, and financing the cost of borrowing because of the pandemic. Does he provide short-term business aid, focus on long-term economic affordability or do a bit of both?
“Our survey results should hearten the Chancellor going into the Spring Budget, with most respondents backing the way he has so far supported British businesses during the pandemic and accepting that any increase in Corporation Tax to help finance the measures would be fair.”
The Prime Minister, Boris Johnson, has promised that the government will do all it takes to protect jobs and livelihoods across the UK and that more details will be revealed in the Budget.
iResearch Services asked 500 business leaders, industry influencers, executives, and professionals across 15 business sectors what measures Rishi Sunak should take in the Budget. With considerable candour, their answers shed light on the situation UK businesses are facing in the face of the pandemic, Brexit, and other pressures.
Is the UK government committed to protecting businesses?
Most respondents (42%) believe the Government is committed to protecting businesses. But 31.8% say that support only extends to certain sectors and another 7% are convinced that aid is offered just to large companies. However, around one in seven (14.2%) assert that Rishi Sunak is not adequately looking after businesses. The rest, with refreshing honesty, are unsure.
One of the major emergency support measures for UK businesses is the furlough scheme, which helps companies protect jobs by paying up to 80% of salaries to those who cannot work because of Covid-19 restrictions. In January, 4.7 million people took up the scheme, according to official figures.
It is widely expected that the Spring Budget will confirm the furlough programme is continued beyond April. But how long should the extension last?
Almost half (48%) of respondents in our survey say Rishi Sunak should continue the furlough scheme for another six months. Around a quarter (26%) say three months is more realistic, while almost one in five (19.6%) believe business should have another year of support. The balance (6.4%) are uncertain.
What happens when the furlough scheme ends?
But when the furlough scheme ends, there will be consequences for business spending and investment. Business chiefs expect they will need to cut back on staff numbers, invest in new technology, pivot/pause expansion plans or training, while one in 20 of those polled (5.4%) are making changes in all areas of their business.
Around one in three (32%) say they will invest in new technology and tools, with 31.4% expected to explore new products or services and 28.4% moving into new markets.
Ending the furlough support will cause 26.8% to restructure or streamline teams, with 22% expecting to cut staff numbers, as opposed to 18.8% who will look to increase their workforce. Training budgets are likely to change in 22.8% of businesses, according to the survey.
Will taxes rise?
Clearly, the massive increase in UK borrowing must be paid for in tax rises, including the option of increasing Corporation Tax, VAT, and personal tax bands, as well as freezing pensions.
But because the cost of borrowing is cheap and the economy is so fragile, it might well be that Rishi Sunak chooses to defer any mainstream tax rises until later Budgets.
The Chancellor has voiced the dilemma with which he wrestles. “I would like to be able to keep taxes low for people in general, I’m a Conservative and I believe in that. But I want to deliver our promises that we made to the British people that we would be responsible with their money, that we would look after the nation’s finances and we would deliver strong public services.”
Other spending priorities
With so much pressure on the public finances, it will be interesting to see whether there will be any additional money spent on the charity sector, Environmental, Social, and Corporate Governance and sustainability measures.
Other major issues that the Chancellor will need to consider include extended measures for the self-employed during the pandemic, support for the housing market, such as another extension of Stamp Duty holiday, a tax on internet delivery services, a possible freeze on pension lifetime allowances and whether benefits should rise.
Then there is the difficult issue of what pay rise should be given to health workers, who have been at the forefront of the battle against Covid-19. However, with an NHS Pay Review Body report due in May, the decision may be deferred.
We will watch what happens in the Spring Budget on Wednesday closely and carefully. iResearch Services will report on the reaction of business leaders once the Budget measures have been confirmed and businesses look to assess and re-assess their priorities.
Optimistic or Pessimistic?
Regarding business sentiment in a post-Brexit Britain, most survey participants (43.4%) are optimistic that policies are in place to grow UK business, while 19.4% are neutral and 37.2% are pessimistic.
Do any of these trends jump out?
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