The growth plan – will this be a benefit for lawyers, accountants, property advisors and consultants?

Author: Neil Williams - Head of Professional Services - Tax- BDO UK.

Kwasi Kwarteng’s Mini Budget marked a dynamic shift in economic policy, sweeping away the old path and create a new way forward entirely reliant on growth.

Greater investment, attracting foreign investment and changing regulation is a high stimulus for the professional services sector. Many firms could benefit greatly from advising businesses across a wide range of industries.

Will UK PLC, currently in recession, be able to sustain itself with lower taxation expected of a traditional Tory government but major government spending more akin to a Labour policy.  Will this actually create an environment of confidence so that professional services firms can to make significant investment decisions to support growth and flourish? 

The government is gambling that this new strategy will deliver the desired growth. We haven’t really got much experience of a low tax, high spend, high borrowing macroeconomic policy in the UK to draw on. The reaction of leading commentators and markets have not been supportive so far and without success, there may have to be further major changes ahead? 

The significant reversal in tax policy will certainly be welcomed by businesses and individuals. However, it is not clear whether this will drive economic growth.  The changes have mixed impacts on people as highlighted below:

For those earning over £150k a year, next year will bring an effective 12.2% increase in net pay for each additional £1 earned. 

Compare this to the much smaller saving for someone earning below £150k who will enjoy a reduction in their tax by 1% for the basic rate band and a social security reduction of 1.25% broadly at the basic rate and higher rates.

This is a beneficial easement for the senior employees and successful owners of professional services firms, however, when considering increased mortgage payments and high energy costs, the result is an ever-increased squeezed middle.

Professional services firms will benefit from the freeze in corporation tax rates, the retention of higher capital investment allowances, the removal of the employment levy together with the repeal of the much maligned off-payroll labour rules.

Balancing the business tax savings against the inflationary pressures and wage growth, it seems difficult to see how much additional investment this will directly bring.

Overall, today’s measures provide support to professional services businesses and an opportunity to support business growth across the economy. However, the early indications showing a further drop in Sterling rates and the FTSE 100 index perhaps don’t support a high level of confidence that the overall economic plan will be effective.  

If you have any questions, please contact Fiona Hall or Geraldine Browne.

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