Pressures remain as we hope the worst of inflation is over

Jeremy Salisbury, Director

Hopefully we are over the worst and can look forward to a brighter Spring and Summer.

The Bank of England has now left interest rates on hold since late summer and in last weeks announcement hinted that the next movement would be downwards.

This is a reaction to the large falls in inflation that we have seen recently with some optimism that the 2% target is possibly within reach, maybe sooner than we think.

There is still caution and world events such as the Ukrainian conflict and the attacks on shipping in the Red Sea, as well as ongoing problems between Israel and the Palestinians are never far away from sending costs spiralling once more.

Growth forecasts remain generally low, and these provide little room for optimism.

Attached to this are the potential for tax cuts. Without sustained growth and an improving economy, tax revenues from increased activity cannot rise and the burden continues to fall on the taxpayer through direct and indirect taxation. The recent cut in National Insurance (2% last month) is most welcome, but the Chancellor now appears to be managing our expectations as regards big tax giveaways in the March budget.

There are some thoughts that there may be a second budget or Autumn review when Parliament returns after the summer recess, and this may herald some further tax reductions although this will be dependent on the outlook for the economy at that time.

Inheritance tax has been in the spotlight with many asking for significant reforms and some looking to have it removed completely. It is doubtful that wholesale changes will be made in the near term. However, it is a very unpopular tax and is certainly ripe for reform.

The burden on business, with Corporation Tax rates at a relatively high level of 25% is seen to be stifling investment. Whilst the 100% expensing announcement – where companies can write off the cost of plant and equipment used in their business fully in the year of acquisition

– is a help; it has not made a big difference to small and medium sized business where that allowance was available for investments of, at times, up to ￡1million per year.

Perhaps a relief such as a ‘super deduction’ for training and staff development could be considered, where enhanced relief is made available at a rate greater than cost – 130%, 140% etc. This would be far more relevant for those companies who cannot invest large sums or those companies that do not have significant capital requirements such as service based businesses where the people costs are the main outlays.

We must be minded of the general election which will probably take place later in the year. Any changes to taxation could well be reversed or changed as a result of a new administration, this will lead to further uncertainty.

Hopefully, the view will be clearer and brighter soon, but there is no doubt that any progress will be tentative while the global crises remain a threat to the economy and the World.

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Jeremy Salisbury

Chairman North Wales Business Club