Has last week’s statement created a ‘Perfect Storm’ for business owners?
It’s safe to say that the last few years have been far from plain sailing for UK business owners. Dealing with Brexit and Covid have already had a huge impact and the Chancellors mini-budget, subsequent currency crisis and rising interest rates on the back of burgeoning inflation have created a ‘perfect storm’ for UK business owners.
They say things come in threes (both good and bad…), we can only hope that Brexit, Covid and the current volatility account for the three things that business owners have had to deal with.
Business owners needed measures that helped provide more stability and certainty for the future from the mini-budget. However, the announcements have done quite the opposite. With a currency crisis and the near certainty of rising interest rates, it feels like business owners are having to ride yet another wave of volatility, which could hinder them being able to make long term plans.
Some positives to take away
There are some positives to take from the announcements the Chancellor made. Some of the measures will provide some short-term relief for businesses. It’s good to see the government focused on growth and promoting investment through initiatives like the creation of ‘Investment Zones’ across the UK.
Announcements around increases in Seed Enterprise Investment Scheme (SEIS) limits and schemes such as SEIS, Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) being extended beyond 2025, will also be welcome news for those looking for investment.
A clearer focus on capital allowances could achieve more
Between 1995 and 2015, Britain had the lowest levels of business investment of all OECD nations. One explanation for this has been that our tax system has not fully supported investment. The UK is also falling behind its European neighbours in terms of supporting capital investment.
Whilst I applaud the government for trying to support businesses and stimulate growth, there are more targeted ways to achieve that than the raft of measures announced by the Chancellor.
Rather than simply cutting Corporation Tax, I would have liked to have seen the Chancellor focus more on tax breaks for capital investment, such as extending capital reliefs to structures & buildings as well as plant & machinery. The Centre for Policy Studies published details prior to the announcements to show how reforming capital allowances would have a far more significant impact on investment than cutting Corporation Tax.
With Sterling plunging to its lowest level against the US dollar since decimalisation in 1971, you could argue that this makes the UK more attractive to these overseas investors. However, whilst the cost of acquisition may be lower for overseas investors, when extracting profits from the UK back overseas, investors will see these profits devalued. The rising cost of imported raw materials because of the weak pound will also affect profits. We are truly part of a global economy nothing is that simple!
What affects will the announcements have?
Many experts predicted that Brexit and Covid would slow down the M&A market, but in many cases, we saw quite the opposite. Challenges breed resourcefulness and innovation and the UK business owner has consistently risen to that challenge. I think it’s too early to say how the announcements in the mini-budget will affect the M&A market overall.
One thing is clear it’s been an incredibly tough few years for business owners with so much uncertainty and volatility that major global events have had and I’m sure that some will be wondering whether to continue to run their business or sell.
What business owners needed was a focus on creating more stability and certainty and the mini-budget announcements have had exactly the opposite effect.
The UK government are right in trying to target business growth and whilst some of the measures offer some short-term relief, they haven’t gone far enough to fuel longer-term investment. More focus on areas such as capital allowances would encourage long-term investment and create a greater impact.
As with all major changes, there will be some opportunities. Whether you are looking at securing inward investment, selling your business or acquiring a business, if you plan, consider volatility, risk and fund appropriately, Friday’s announcements won’t stop many business owners making key decisions. Our business founders and entrepreneurs have consistently risen to the challenges of the last few years – I am sure they will do so again.