Announcements from the Chancellor focussed on rewarding work and creating business incentives, which should be good news for consultants, law firms, property advisory and recruitment firms.
The reduction and simplification of National Insurance for the self-employed, including for members of LLPs and for employees will be welcome news for people businesses, which have seen significant pressure on their reward propositions during the ongoing cost of living crisis.
However, with fiscal drag (the impact of inflation moving taxpayers into higher tax brackets) so prevalent, it is difficult to see how the announced cuts to National Insurance will create additional productivity or reduce the pressure on firms to make their reward incentives fit for purpose.
The OBR forecasts that household disposable income will be 3.5% lower in 2024 than pre-pandemic levels, which together with the impact of the ‘mortgage penalty’ will likely mean increased wage demands.
Variable pay and equity awards are often the financial tools utilised to manage the annual impact of wage costs, but with time to exit lengthening and funding rounds possibly slowing, now is the time to ensure your people proposition is focussed.
With increasing thresholds and complexity, firms will need to continue to monitor how compliance is managed for the National Minimum Wage and Living Wage changes. With some high-profile breaches announced by HMRC earlier in the year the regulations pose a real reputational danger.
International firms will already have been planning for the introduction of Pillar 2’s minimum 15% effective tax rate, and so today’s confirmation will add to the largely administrative aspects of global tax compliance.
On a positive note, the permanent introduction of full expensing of capital spend will be attractive for those professional services businesses already looking at office moves or investment in technology, but a significant question remains whether the economic outlook is sufficiently positive to use these measures as a catalyst to invest in growth opportunities.
The government announced investments in education and skills development, including school funding, opportunities for adult training, employer-based training and changes to apprenticeships. Together with a commitment of £50 million to a two-year apprenticeships pilot to stimulate training in growth sectors and address barriers to entry in high-value standards, firms will be hoping for an impact in the quality of their early in careers recruitment over the medium term.
Those firms focussed on advising markets such as those associated with Investment Zones, Freeports and housing supply will welcome the government commitment for boosting growth and investment in these areas.