What the UK Government’s Growth Plan means for Small Businesses
On Friday 23 September, the UK government laid out an ambitious Growth Plan that aims to bring about sustainable economic growth while targeting a steady 2.5% growth rate. The government aims to achieve this by creating skilled jobs with higher wages, enhancing investments, boosting living standards, and making Britain an attractive business destination for investors.
The plan also suggests significant tax cuts and the necessary business reforms required to drive investment. In addition, the plan also focuses on addressing the challenge of high energy costs for households and businesses. If you’re a small business owner, you might be wondering what the implications of the Growth Plan are. Here is a simple breakdown of what The Growth Plan 2022 is all about.
Economic and Fiscal Context
The Growth Plan 2022 holds that fiscal sustainability in the medium term will play a pivotal role in providing economic stability and investor confidence needed for long-term growth. As a result, the government is committed to fiscal discipline and has promised to disclose its medium-term budget plan moving forward. Overall, the plan is based on three major pillars:
- Committing to fiscal discipline and responsibility while reducing the debt burden over the medium term
- Making responsible decisions to achieve the above, such as keeping spending in check
- Maintaining strong frameworks and institutions
Energy Prices and Regulation
The Department for Business, Energy and Industrial Strategy will play a major part in the realisation of the Growth Plan 2022 targets. This is because the UK government plans to roll out the Energy Bill Relief Scheme – a six-month plan aimed at cushioning businesses and other energy users against the expected spike in energy prices during winter. This will offer discounts on electricity, which will be a much-deserved relief for all those involved.
By reducing barriers put in place by excessive and unwarranted regulation, the government hopes to enable businesses to achieve their true potential. Furthermore, planned changes in regulation will enable increased economic growth and will be supported by a simplification of the tax code in various government institutions.
A Simpler and Lower Tax Economy
The Growth Plan 2022 will ease the tax burden on small businesses by implementing tax cuts amounting to approximately 45 billion pounds per year. By instituting a pro-growth tax system, the government aims to:
- Establish a conducive business environment for investors and innovation
- Increase the wages of hard-working families to improve living standards
- Create a simple tax system that will suit the future
Business Tax Cuts
In the plan, the Corporation Tax rate, which was set to increase from 19-25%, has been cancelled. This action alone should pump about 19 billion pounds back into the economy to benefit small businesses. The Diverted Profit Tax rate remains at 25%, whereas the Bank Corporation Tax Surcharge cut has also been scrapped.
The government plans to introduce an investment package aimed at helping small businesses raise funds and attract the talented employees required to maximise their growth. Meanwhile, the Annual Investment Allowance will remain unchanged at 1 million pounds, meaning that the tax cut for businesses will amount to approximately 1.3 billion pounds a year.
Companies will also be allowed a 100,000-pound increase in the amount they can raise under the Seed Enterprise Investment Scheme beginning April 2023, whereas the company age limit will go from 2 to 3 years as the annual investor limit doubles to 200,000 pounds.
Finally, the plan will create a new VAT-free shopping scheme as an incentive for foreign visitors, and this aims to create more employment opportunities for people working in the retail and travel sub-sectors of the economy.
The Growth Plan 2022 will increase private capital investment by pumping billions of pounds into the economy. The cash injection should enable British businesses to develop novel technologies and scale up their growth. Also, there are proposed draft regulations that will restructure the pensions regulatory charge cap. These will also allow defined pension schemes the flexibility and clarity to invest in innovative businesses and promising assets. This will enhance their potential to bring higher yields for savers. Long-term investment in technology and science initiatives will be another exciting aspect of the plan. Through this, up to 500 million pounds will be made available to mobilise investments in innovative UK businesses.
Enabling Businesses to Focus on Business
The Growth Plan acknowledges that businesses are the heartbeat of the economy and that reduced regulatory challenges, pro-competition regulation, and simplified tax systems will drive their growth. This is why the government is committed to reducing barriers stemming from unnecessary regulation by implementing a set of pro-growth regulatory changes.
This will include the establishment of a simple tax system for small business growth, as well as an embedded tax simplification process in different government institutions. The Plan will repeal the 2017 and 2021 reforms made to the off-payroll working rules from April 2023. This will enable workers offering services through an intermediary to determine their employment status. It will in turn save businesses the time and money spent engaging contractors, enabling them to focus these resources on alternative priorities.
The government also published a response to the Alcohol Duty Review consultation and provided draft legislation. This contained reforms that would simplify the current system by making it less administratively burdensome and more economically rational for businesses.
According to the Growth Plan 2022, the government is set to announce investment zones. It is consulting 38 Upper Tier Local Authorities and Mayoral Combined Authorities interested in having a designated zone within their localities. These are precisely areas that will boost growth, alongside unlocking housing rights around the UK. The chosen areas will benefit from planning liberalisation, tax incentives, and enhanced local economic support. In a nutshell, investment zones will realize benefits in the form of:
- Reduced taxes for businesses in these sites through time-limited tax incentives
- Accelerated development in designated sites through streamlined planning applications and collaboration with sites to understand the needed measures to unlock growth
- Wider local economy support through better control of growth funding for designated zones with appropriate governance.
The UK Growth Plan 2022 comes as a relief to households and small businesses, especially against the backdrop of high inflation, rising living pressures, and weak economic growth. It makes a fair share of promises and commitments to the improvement of the economy. Small businesses will be waiting with bated breath to see how well the implementation turns out.
Whilst the changes and plans have been announced there is concern from the UK market that the plan has not been thought through and there could be a massive u-turn in the weeks or even days ahead.
If you need help understanding the changes and how they will affect your small business, contact us today at 02920 777 756 and one of our experts can help.