The countdown to Rachel Reeves’ second Autumn Budget is now underway and it is already clear the Chancellor is facing a major challenge. Reports have highlighted Ms Reeves’ ‘trilemma’ - how to pay for her spending plans, keep her promise not to raise taxes on working people and still stick to her own borrowing rules. In addition, she must reinvigorate the economy as well as keeping businesses, voters and members of her own government onside.
Speculation was rife before Ms Reeves set the Budget for 26 November. Since that announcement, the news, opinions and lobbying have moved into overdrive. Here we round up some of the early Budget reports.
Toughest in living memory
One of the first to respond to the Chancellor’s announcement was the Resolution Foundation. The think tank predicts that it will be ‘one of the toughest second Budgets in living memory’ and says the Chancellor will need a tax strategy to get through it.
Ruth Curtice, Chief Executive of the Resolution Foundation, says: ‘With higher gilt yields currently adding over £3 billion to debt interest costs, and over £6 billion of policy U-turns announced since March, the Chancellor is already on track to miss her fiscal rules. With a growth downgrade also likely, significant fiscal tightening will be needed.
‘The Chancellor should use this Budget to set out her tax strategy as well as raise revenue. While tax rises are likely to be necessary, this should aim to ensure they make the system fairer and more efficient, supporting higher growth and lower inequality.’
Cycle of sluggish growth
The ‘trilemma’ that Reeves faces at the Autumn Budget comes on top of a steeper challenge, according to the British Chambers of Commerce (BCC).
The business group says the UK economy has been stuck in a cycle of sluggish growth for several years. Productivity continues to lag behind other advanced economies, business investment remains weak and political uncertainty has weighed heavily on business confidence.
Confidence and certainty
Caterina Batog, Research and Economics Analyst at the BCC, says: ‘Businesses need the right confidence and certainty to invest and grow. The upcoming Autumn Budget will be an important moment to provide that stability. The BCC is calling for no further tax rises on businesses and greater support to unlock investment and safeguard growth.
‘The government must also be prepared to respond to unexpected economic shocks. The combination of fragile global supply chains, heightened geopolitical tensions and persistent inflationary pressures leaves the UK economy exposed to volatility.
‘Clear policies that support business adaptability will be critical in ensuring that shocks do not further derail the UK’s already fragile growth trajectory.’
Link to the Treasury
The government has responded to the challenges it faces on 26 November with the launch of Budget Board.
The board has been created to link top ministers and 10 Downing Street officials with the Treasury.
The board will meet weekly and will be chaired by the Prime Minister’s new economic advisor Baroness Minouche Shafik and Treasury Minister Torsten Bell.
Works for Business
Anna Leach, Chief Economist at the Institute of Directors (IoD), says: ‘To be successful, this board needs to deliver a Budget that really works for business, with swift action to remove barriers to growth from the regulatory and tax system. We look forward to engaging constructively with the board to ensure the voice of enterprise is at the heart of its work.’
Business rates cliff edge
We have also been offered some clues as to where Ms Reeves may act at the Autumn Budget.
A report from HM Treasury says the Chancellor will look at fixing the cliff edges in business rates that can discourage small business investment and growth.
Currently when a business opens a second property, they will lose access to all Small Business Rates Relief (SBRR) unless they meet specific conditions, holding businesses back from expanding.
That means that a small local business would have to pay thousands of pounds more for opening a small shop in the next village.
The report confirms that the government will review how SBRR can support business growth, potentially lifting growth and living standards in the future for those who work in these small businesses.
The Autumn Budget
The Chancellor will deliver the Autumn Budget to Parliament on 26 November.
Whatever changes are made, Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our range of digital and printed products.