The mini-Budget: What it means for your business

Anyone who has come across any news story over the past week will likely have heard something dubbed the mini-budget. The budget saw the newly appointed Prime Minister, Liz Truss, take an axe to cut the cap on bankers bonuses and a sledge hammer to the fiscal policies set previously by her own party. The mini-budget also saw income tax cut for many of us, stamp duty thresholds increased and the reversal of IR35 legislation. None of this sounds too bad but it immediately saw the pound go into free fall with it eventually landing at its lowest point since the 1970s against the dollar. As of today (30th September 2022) the pound is only worth $1.05! For businesses buying from the US this now means your goods and services will cost you 7% more than last week. So it appears to many observers that Liz Truss has wrapped herself in a tinder blanket and the friction coming off both benches may be enough to create the spark.

Liz Truss’s future may well go up in flames but is she going to burn our businesses to the ground with her? Trickledown economics is hugely criticised by both professional and armchair economists and is the reason the government don’t like to admit they are relying on it. Whether they like to admit it or not, it is exactly what they are doing. However, for the most part and despite what our economist friends say, it isn’t all bad. It is true that your business won’t see much when a banker buys their second or third holiday home in the Bahamas. But when they invest in real estate in the UK there’s a chain of beneficiaries. What’s more, many of the tax cuts affect normal working people who, with extra cash in their pockets (so to speak, we know cash doesn’t exist anymore) are likely to spend it in businesses or on services in their area. The reversal of IR35 is designed to work with this and achieve the same thing. The government knows that they might lose some taxable income through the reversal of IR35. However, they are betting that they’ll see more contractors earning good money which they will spend in their local economy. It is hoped that this will start a chain of events where demand for goods and services goes up resulting in more vacancies on our job boards. The more vacancies equates to more opportunities for people to get off the governments unemployed benefits bill, and onto the books of an independent business. When this happens the government pays out less in benefits and in theory, takes in more from taxes. This in turn leads to economic growth.

Despite the negative press surrounding the new mini-budget, it is designed to support businesses and with it, economic growth. It is true, the collapse of the pound didn’t help many of us but if you have US customers buying your goods and services, it will be cheaper for them now. Currency and stock markets are volatile and respond to news and feelings more than to reason and logic. A sinking pound today could be a crest surfing pound tomorrow. However it is inflation that sets the temperature of the water which right now, is ice cold. Fortunately the Bank of England are planning to raise interest rates to help thaw it out. It is essential they are able to do this because there is no use in people having more money if the rise in the price of goods cancels it out. The objective of the government is to give people more disposable cash to support our businesses. But this won’t happen without politicians on both sides believing in it which will send the messages needed to stabilise the markets and currency.