UK Chancellor Jeremy Hunt delivered an autumn statement pledging “£55billion consolidation” and prioritizing “stability, growth and public services”.
After the many “U-turns” since Kwasi Kwarteng’s mini-budget, the new statement confirmed the government’s abandonment of its predecessor’s economic plans.
“I understand the motivation behind my predecessor’s mini-budget and he was right to identify growth as a priority.” Hunt commented. “But unfunded tax cuts are as risky as unfunded spending, which is why we quickly reversed planned measures.”
Coinciding with the latest forecast from the Independent Office for Budget Responsibility, the new Chancellor used the results to justify the UK’s economic position in his speech, blaming global factors as “the main cause of current inflation”. .
Hunt then announced a series of ‘tough decisions’, including ‘demanding more from those with more means’, including lowering the threshold at which the additional rate of income tax applies from £150,000 to £125,140 and announcing exceptional ‘temporary’ energy taxes. corporate profits by 35% instead of 25%.
However, think tanks at the Resolution Foundation and the Institute for Fiscal Studies have pointed to how deep spending cuts are being postponed until after the next general election.
The OBR report shows a depressing outlook for the UK, with a forecast recession, rising unemployment and a 7% drop in living standards for the next two years, the biggest fall in six decades.
“The economic outlook makes for grim reading,” says Caroline Norbury, CEO of Creative UK. “The two million people who represent Britain’s creative industries will not have heard much in today’s statement to reassure them about their future.”
However, the relative “stability” offered by the statement has been welcomed by design leaders.
Norbury said: “Given the volatility of recent months, the Chancellor’s efforts to restore economic stability are welcome.”
A DBA spokesperson comments: “Design agencies depend on industry confidence to invest in their own businesses and this is greatly enhanced when there is stability and a degree of confidence in what the future holds. can book.
Research and development
Following a series of announced changes, the point most raised by industry executives was that more needs to be done for research and development (R&D).
Norbury comments: “The Chancellor has rightly spoken of the need for growth – and the UK’s creative industries are well placed to help drive growth and innovation if key barriers are removed”.
The R&D tax relief rate fell from 130 to 86% and the tax credit relief from 14.5 to 10%.
According to Hunt, “Despite the increase in revenue, the OBR has confirmed that these measures have no negative impact on the level of R&D investment in the economy.”
However, Michelle Denny-West, tax associate at accounting firm Moore Kingston Smith, comments that the changes “will be a big disappointment for companies in the design industry who are currently using the tax breaks available for R&D”.
She explains that the cuts were justified by reported “abuses” of the current system of tax relief and which the government “seeks to deter by reducing the relief available, with a view to eventually having a one-size-fits-all system”. Among the cuts, however, the Credit for research and development expenses (RDEC) for large enterprises will increase from 13% to 20%.
The Chancellor also promised to work with industry “to understand what additional support R&D-intensive SMEs might need”, a move welcomed by industry leaders who are calling for change.
According to a DBA spokesperson, “The DBA will continue to press for the definition of what qualifies for R&D relief to be broadened to include a broader range of design investments.”
Minnie Moll, CEO of the Design Council, adds: “As part of the reform of R&D tax credits, it is crucial that the definition is broadened to include design, and that SMEs and micro-enterprises, which form the vast majority of the design economy in the UK, are supported. .”
Norbury also comments: “Similarly, we are keen to stimulate innovation in our thriving sector by expanding R&D tax relief to include the arts, humanities and social sciences, rather than ‘rebalancing’ the rates”.
The skills gap and the future of the planet
Moll explains how the Design Council is currently trying to improve investment in skills.
“We hope to work with the new adviser on skills reform to reverse the 68% drop in GCSE design education and expand the technical pipeline in the sector. Investing in design skills is key to ensuring a prosperous and productive economy over the long term,” she says.
Moll also suggests that investment in design will be vital for the UK to meet its environmental commitments.
“We welcome the Chancellor’s renewed commitment to the COP26 pledges and increased investment in energy efficiency through home insulation. Britain’s world-leading design and architecture industries are ready to meet this challenge.
She adds: “If this investment is implemented effectively, the sector has enormous potential to enable us to meet the government’s targets of a 15% reduction in buildings and energy consumption by 2030. However, delaying the expansion of this program to 2025 is a missed opportunity to accelerate solutions to reach net zero.
Income Tax and National Insurance the thresholds will remain at current levels, with the exception of the additional rate threshold reduced from £150,000 to £125,140 from April 2023. However, Denny-West points out that “when taking into account the abolition prior to the 1.25% National Insurance hike, many high earners will not be worse off overall compared to the 2022/23 tax year.”
Denny-West adds that the budget will also have an impact on low wages, as the freezing of thresholds “will lead to a reduction in wages in real terms unless incomes increase with inflation”. She adds that this will “increase the pressure on employers in the design industry to increase salaries in addition to other cost pressures”.
The DBA is also concerned about the pressure for employers in the design industry. According to a DBA spokesperson, “personal income tax increases will affect design companies trying to manage their talent pool and grow and sustain their culture.”
“We know our members try to be fair to their staff and support them through difficult times, but a looming recession is preventing companies from being generous,” adds the DBA spokesperson.
Capital gains tax sees a reduction in the annual amount exempt from £12,300 to £6,000 from April 2024 and £3,000 from April 2024. Denny-West describes this as “unsurprising”, “many expecting more drastic measures. For designers, she explains, this will only affect those who supplement their income with investments or who have investments within their business.
The announcement reduction of the dividend deduction £2,000 to £1,000 in April 2023, and £500 a year later “will be disappointing for small, owner-run businesses in the design industry,” says Denny-West.
The VAT registration threshold will be maintained at the current level of £85,000 until March 31, 2026. “This announcement will be disappointing for smaller businesses operating in the design industry,” comments Denny-West. She also warns that these businesses will need to watch their revenues carefully “to ensure they don’t fall asleep in a VAT nightmare, exposing themselves to penalties”.
Electric car – company car tax benefits for electric cars will increase by 1% for three years from April 2025; Vehicle excise duty will be equalized for electric vehicles from April 2025; the allocations of the first year of investment for electric charging stations will be extended by two years until April 2025
Non-doms’ tax status remains intact
Hunt says government undecided on OBR forecast increase in fuel taxes
Benefits and pensions increase with inflation
Social protection reforms to protect the vulnerable have been delayed
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