Together with IPM’s Chief Economist, Christian Spence, The BID foundation have analysed the Treasury’s 70-page publication and produced a PDF with helpful information from the statement. Some of the information can be read below however for all of the information please read the full five page PDF.
Recession and high street impact
The UK economy is officially in recession – with GDP falling by 2% (predicted) in 2023. What this means in practical terms, together with the scale of government borrowing, is the tax increases and spending cuts to try and address a historically significant moment for the UK economy. This also means:
• A predicted 7% fall in living standards by 2024
• Business investment shrinking by 10% compared to 2019 levels – so less investment in new capital such as stores, equipment and so on.
• As real wages fall – households have already started to cut back on spending with retail sales volumes falling by 1.4% in September (now below pre-pandemic levels).
There is positive news on business rates support after months of lobbying government from IPM, TBF and every other sector body. Whilst there is no fundamental review of the nondomestic rates system, there is a range of meaningful financial support for rates:
• 75% rates relief for retail, hospitality and leisure sectors – up to £110,000 per business, in 2023/24. Effectively those in these sectors currently receiving the tapered support rate of 66% relief, a legacy of COVID-19 response, will continue to receive support. This means many levy payers will continue to save thousands of pounds a year; an unexpected and very welcome announcement.
• Revaluation of properties in 2023 – this will happen on 1st April 2023 based on rental market values at 1 April 2021. The expectation is that over 2/3 of properties will not rise in value (the revaluation point was mid-COVID crisis, when a significant impact to the rental market was evidenced in many locations). For those worrying about an increase in business rates, there is more support announced.
An extension of the energy support for households was welcome, with the large caveat that the business support scheme is still under consideration. Read on to understand how new measures will be felt by businesses:
• Energy Bill Relief Scheme (for businesses) – the plan remains for the current level of business support for energy bills (via a cap) to end on 1st April 2023. The Treasury is now leading a review of how this support should continue in a more targeted manner after 1st April 2023, likely based on support for specific sectors. This review will be published by 31st December 2022 and IPM and TBF, amongst others, are working to influence it. Previous statements suggest that hospitality (with pubs specifically also mentioned) will be considered in scope for this support, but we await further detail in black and white, via the Treasury review.
• Energy Price Guarantee (for households) – this support will continue from 1st April 2023 to 31st March 2024, with the unit cap shifting upward slightly, meaning that the average household’s consumption over 12 months will cost £3,000. This is welcomed as a positive step for consumer confidence, and to support high street spending by insulating some of the economic shock to living standards from inflation and recession.
Employment and wages
The labour market continues to be tight – although a small loosening is expected with unemployment rising from 3.6% to an expected 4.9% in 2024. Finding the right talent and rewarding them will continue to be vital and a tough task in many sectors. The following measures will have an impact on this task:
• National Living Wage to increase by 9.7%; with increases across all age brackets. The NLW will be £10.42 from 1 April 2023, with the 21-22 year old rate rising even more (by 10.9%) to £10.18.
Public sector budgets
Further statements in the house will outline what the economic situation means for specific government departmental spending – but what we know is that budgets will raise by the previously committed 3.7% (apart from in the NHS and areas of Health and Social Care where this is more). What this means is that inflation will create a situation of effective cuts to spending power – hence the Chancellor talking about ‘efficiencies’ to be found.
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