Welsh Business Leaders React to Rachel Reeves’ Historic Budget: Labour’s First Since 2010 and the Largest Tax-Raising Fiscal Event in Over 30 Years, Delivered by the UK’s First Female Chancellor.
A Corporate Finance Perspective – Rob Wallace, Partner, Gambit Corporate Finance LLP
The budget has been a constant source of conjecture given the implied scale of tax rises needed and the length of time the country has been given to let their imagination run. From a corporate finance perspective:
Capital Gains Tax – changes to capital gains tax were widely understood to be in the works. How big an increase and the date it would come into effect (immediately or from the next tax year) were the obvious questions. The increase to 24% taking effect from 30 October 2024, while hard to reconcile with a pro-growth and investment strategy, would be seen by most to be a more palatable increase compared to early rumours of alignment with income tax rates. As a result there is unlikely to be a significant impact on M&A activity following this announcement.
Business Property Relief – some significant changes to business property relief have been announced now subjecting trading businesses worth over £1m to inheritance tax (at an effective rate of 20%). This will have a big impact on how some multi-generational family businesses plan their affairs going forward.
Employer National Insurance – the increases to employer national insurance from 13.8% to 15% and just as importantly the reduction in the per-employee threshold from £9,100 to £5000 is probably the most significant and biggest tax raising announcement. The impact of this on businesses of all shape and sizes is hard to quantify but there is concern that it will influence hiring and other investment decisions for larger organisations and cause real problems for smaller businesses.
UK Budget Increases Pressure on Retailers – Sara Jones, Head of the Welsh Retail Consortium
Wales’ retailers will face a £120 million increase in their tax bill following the Chancellor’s announcement that employer national insurance contributions are to rise. Combined with increases in the statutory wage rates it’s clear retail businesses will see big hikes in the cost of employment, whilst there was little sign of any significant reform to non-domestic rates. Such stark increases will increase the cost of operating a retail business and are unlikely to be absorbed by businesses, at a time when Welsh retail sales are flatlining, making it likely those costs will be passed along to consumers.
The update on the economy brought little sunshine. Economic growth is only predicted to rise to two percent at best before easing back, whilst it will be 2029 before inflation returns to beneath the two percent target. That implies little rise in household disposable incomes, further increasing the challenge for retailers looking to grow their businesses.
Retailers’ will now turn their attention to the Welsh Budget, with the devolved government due to receive substantial sums in Barnett Consequentials. Retailers will hope to see action to blunt any rise in non-domestic rates and have called for a rates discounter for the industry, given it is disproportionately impacted by this outdated tax system. With retail under pressure given the Chancellor’s additional employment costs, the Welsh Budget provides an opportunity for Ministers to take tangible steps to help retailers as they seek to keep prices down for consumers. We hope they seize the moment.
40% Rates Relief Welcomed in England, but Welsh Businesses Need Similar Support from Welsh Government – David Chapman, Executive Director, UKHospitality Cymru
We’ve campaigned long and hard for support with Business Rates and so the provision of 40% relief for businesses in England from April is very welcome.
However, it’s vitally important that the Welsh Government utilises this funding to provide businesses with a suitable level of continued rates support here.
The Welsh government should be applauded for paving the way to the introduction of a lower business rates multiplier through recent legislation. While we discuss a new, better system, it would be incredibly beneficial to the sector to have all of this interim relief made available to us.
Looking at where we are at the moment, things are still tough for our businesses. We are likely to face some post-Christmas closures and certainly staff and offer cutbacks because of cost increases in other areas, such as the new employer National Insurance Contributions and higher-than-expected wage rises, and so the rate relief assistance is very important indeed”
A Tough Budget for Business – Leighton Jenkins, CBI Cymru Policy Manager
The Chancellor had difficult choices to make to deliver stability for the economy and public finances. A more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long-term.
This is a tough Budget for business. While the Corporation Tax Roadmap will help create much needed stability, the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.
We welcome the Chancellor’s support for the HyBont Green Hydrogen Project in Bridgend. Set to produce 443 tonnes of green hydrogen annually, the project highlights how public and private partnerships can deliver a low-carbon economy. This investment boosts Welsh jobs and renewable energy, contributing meaningfully to net-zero goals.
We are also pleased with the £163 million boost to the Industrial Energy Transformation Fund (IETF), which has already enabled Welsh firms to cut emissions. The increase in funding, if aligned with similar Welsh schemes, has the potential to make Wales an attractive place for capital investment on net zero projects.
Lastly, the £1.7 billion in Barnett consequential funding is welcome additional investment in our under-pressure public services.
Only the private sector can provide the scale of investment required to deliver the government’s growth agenda. To achieve this shared mission of growing our economy sustainably, it’s vital that the government doubles down on its partnership with business to unlock the investment that is needed to drive opportunity around the UK.
More Important than Ever for Businesses to Seek Advice of their Accountants – Lloyd Powell, Head of ACCA Cymru/Wales
The focus on investment, economic stability, boosting growth and supporting public services are welcomed – with £1.7bn of additional funding for Wales though the Barnett Formula, and the announcement on support for coal tips and a green hydrogen project in Bridgend.
However, although partially offset by changes to allowances, the impact of the £40bn of increased taxes announced – including on Employer National Insurance contributions and thresholds and Capital Gains Tax – will be felt by many businesses across Wales. Business confidence, critical to encourage investment and stimulate growth, has been in short supply in recent months. Following these announcements, it’ll be more important than ever for these businesses to seek the advice of their accountants; to ensure they comply with changes, as well as refocusing business growth plans.
Workers across Wales will welcome the decision not to increase Fuel Duty and to unfreeze Income Tax and NI thresholds from 2028/29.
With a wide range of tax changes announced, the Chancellor should have gone further on simplifying the tax system, with the changes announced arguably adding to existing complexity.”
Welcome Employment Allowance Rise must be Backed by Welsh Government Draft Budget for SME Growth – Ben Francis, FSB Wales Policy Chair
Following campaigning by FSB, the Budget delivered vital relief from rising employment costs for the smallest businesses by increasing the Employment Allowance.
Yet we must recognise that businesses are still operating in conditions of razor-thin margins and soaring costs. That is why the Welsh Government must introduce a Draft Budget that prioritises policies that support SME growth and prosperity.
This must include at the very least extending the 40% business rates relief for the hospitality, leisure and retail businesses still struggling with low consumer spending and disproportionately high costs and freezing the multiplier, as businesses in England will benefit from.
In the longer term, the Welsh Government should align the business rates system with a forward-looking mission to drive prosperity by creating a dynamic system that encourages small business investment.
Consequential funding from today’s budget presents an opportunity for the Welsh Government to unlock Wales’s economic potential by investing strategically in our critical infrastructure, including improving transport networks and boosting business support.
99.3% of business in Wales are SMEs; if they are supported to achieve their aspirations, they will be our growth engine.
Easier Startups and Scale-Ups Must Be a Priority for Government – Robert Lloyd Griffiths, Director for ICAEW in Wales
We’re pleased the government has committed to a corporate tax roadmap, to changing the debt rules and to further investment in making HMRC fit for purpose – all things we have called for in the run up to the Budget. These measures will provide businesses with clarity and stability, and remove barriers to much-needed investment.
However, there’s still plenty of work to do. The government must spare no effort in making it easier to start, run and scale-up a business in the UK, to incentivise investment and boost the resilience of the economy.
We look forward to working with both Westminster and Welsh Government to leverage investment, boost resilience and unlock economic growth in Wales. That’s what will create wealth and opportunity for all.
Real Test will be Whether the government Can Deliver on its Investment Plans – Gus Williams, interim CEO at Chambers Wales South East, South West and Mid
This was always going to be a difficult budget. The headlines are going to be the £40bn increase in taxes which was inevitable given pressures caused by demographics – an ageing population – increasing numbers of people not participating in the workforce, and the need for long term public investment.
The approach has been to try and spread the additional tax burden as widely as possible without touching income tax or VAT, focusing on those taxes that provide most certainty that the rises will increase the tax take in the short term. This means changes to Employers NI, inheritance tax, agricultural and business disposal relief, Capital Gains Tax, second home stamp duty, abolition of the non-dom regime, air passenger duty, tax on vapes, VAT on private schools.
Changes to Employer NI, just increasing the rate to 15% and reducing the threshold from £9,000 to £5,000 rather than including pension contributions means a slightly lower rise in Employers NI than had been flagged, and makes sense as it retains the pension contribution incentive. But it will be a burden to businesses, particularly in some sectors where wages are at the lower end and where staffing costs are a high proportion of overall costs.
The increase in the National Minimum Wage and increases to Employers NI will undoubtedly squeeze small business margins, and small business will want to see evidence of government investment, and other initiatives that grow the economy and increase opportunities to counter this squeeze on margins – or the cost pressure on small business could have consequences on hiring and investment.
Some will be upset about the increases in Capital Gains, but it is worth noting that the rises in CGT broadly take us back to where they used to be, there are various exemptions and rules which we will need to look into before providing a full assessment.
Freezes on small business rates and reductions for the hospitality and leisure sectors are something the Chambers of Commerce lobbied hard for, and are welcome. The infrastructure investment plans appear sensible, well thought out and achievable rather than just aspirational. The reduction in draft alcohol duty is welcome news for pubs.
Changes to inheritance tax for agricultural and business property will impact succession and tax planning for a number of small business owners, and it is important that all small business owners make sure they have a succession or exit plan in place.
The slight of hand in all this is that a lot was made of personal allowances increasing in 2028 – it’s currently 2024. The ongoing freeze in personal allowances until 2028 combined with the national minimum wage increases will push more tax revenues into the Treasury, and this is probably where a significant chunk of the additional tax take will over the course of this parliament will actually come from.
The real test will be whether the government can deliver efficiently on its investment plans, makes the right decisions on capital spending, can deliver genuine reform to the planning system, and can tackle the impact of those not working and particularly not working due to long term sickness.
Mixed Outcomes for Manufacturers – Chris Barlow, Head of Manufacturing at MHA
There were winners and losers in the manufacturing industry from Rachel Reeves’s first Budget today.
There was further formalisation on the commitment to introduce an industrial strategy which also includes SMEs and significant spending commitments for aerospace, automotive and life sciences. Hopefully, this will encourage much-needed overseas investment that the UK manufacturing sector requires to allow it to grow to its full potential.
The announcement on a further commitment to skills has come as welcome news. The shortage of skills has been a perennial Achilles heel for manufacturers for years. It is hoped that this will plug the widening skills gap that the manufacturing industry faces.
However, employers have been hit. The increase in employer National Insurance contributions and the significant rise national minimum wage will have a knock-on effect and therefore have a considerable impact on businesses.
Business owners have also been impacted by the changes to Business Asset Disposal Relief although the £1m threshold has been held meaning that it was not as bad as had previously been feared. The changes to business rates relief will again impact business owners as will bringing pensions into Inheritance Tax thresholds.
However, there were some real missed opportunities. There were no changes to R&D or capital allowances. The former is a real missed opportunity (the new regime is too hard when looking at relief for smaller entities). Capital allowances already work relatively well.
There were no changes announced to corporation tax which is still relatively high compared to our Irish neighbours.
There were also no announcements on dealing with Europe post-Brexit which remains a significant challenge for manufacturers particularly when it comes to challenges with supply chains.
Yet, as always the devil will be in the detail as and when it is released.
Boost for Offshore Wind Manufacturing and Green Hydrogen – RenewableUK’s Chief Executive Dan McGrail
We welcome the Chancellor’s commitment to use the National Wealth Fund to transform ports around the UK into new industrial hubs for offshore wind manufacturing and assembly, building and supplying projects here as well as exporting our cutting-edge technology worldwide. We know that, with the right grants and incentives from the National Wealth Fund, the UK has the potential to secure hundreds of millions of pounds of investment in offshore wind alone, building the supply chain and creating jobs. Given fierce international competition, the sooner that process starts the better.
Ultimately, with co-ordinated support between Government and industry, we believe the UK could triple the size of its offshore wind supply chain, boosting the economy by £25bn over the next decade.
We’re also pleased to see support for eleven new green hydrogen projects which will provide vital flexibility and greater stability for our future energy system, as green hydrogen can be stored and used whenever it’s needed.
R&D Investment is Welcome, but Stronger Support for our Universities is Vital – Rosalind Gill, Head of Policy and Engagement of National Centre for Universities and Business (NCUB)
The Chancellor and the new Government have today made the important decision to invest in research and innovation to drive economic growth. However, innovation-led growth needs to be built on strong foundations, and there are many measures and omissions in the Budget that need to be better understood,
In their first Budget, the Government delivered for UK innovation and research and development (R&D). We warmly welcome the Government’s acknowledgement that research and innovation is a vital and critical driver of growth, and its headline announcement of further investment into R&D is a positive step forward. We applaud the Government for recognising that UK R&D is crucial for future competitiveness, growth, clean energy goals, healthcare advancements, and national security.
However, it is clear that the UK needs to truly shift the dial on private investment, including private investment into R&D. This requires a competitive and supportive environment. The cumulative impact of tax rises will have an impact on investment and could make it harder for businesses to start, scale and grow here.
Businesses tell us that the strength of the UK’s university system is a significant reason why they choose to invest here. In many parts of the UK, universities are major employers and economic engines. This Budget may well have significant unintended consequences for the sustainability of the UK’s world-leading university system. The prospect of increased employer National Insurance contributions will significantly raise staffing costs. Just the change in rate to 15% will cost universities well in excess of £150 million a year, and the changing threshold is likely to have an even greater impact. Only through more sustainable funding can universities focus on their public mission rather than financial survival. We implore the Government to recognise this, before it’s too late.
