A look back on this year is once again a stark reminder of the resilience of business. Despite the ongoing challenges businesses continue to face, the positivity of ICAEW members is both inspiring and reassuring. The recent series of films produced as part of ICAEW’s Resilience and Renewal campaign provides shining examples of members leading the charge in driving growth, developing skills and exploring international markets. 

ICAEW’s Business Confidence Monitor (BCM) provides a valuable barometer of business confidence. Although we’ve seen a return to positive territory over the course of the year from a negative reading of -23.4 in Q4 2022 to Q3 2023’s reading of 2.9, this increased confidence appears fragile by historic standards.

The insight gathered from ICAEW members provides the real stories and anecdotes behind the quarterly BCM numbers. Our volunteer network of committees, community advisory groups and regional networks give us unrivalled insight into the challenges facing members. 

Q1: Spring Budget

In January, ICAEW compiled a Budget Representation sent to HM Treasury outlining key asks in anticipation of the Chancellor’s Spring Budget presented in March. The announcements were generally welcomed by ICAEW members with the caveat that the devil is in the detail. 

Growth and labour market participation, particularly to address childcare issues, were raised and subsequently addressed by some of the key policy announcements. The full expensing investment incentive was welcomed for providing certainty and giving business more confidence to invest, particularly in the context of a pending rise in the Corporation Tax rate. 

However, the issue of higher energy costs continued to loom large. Despite an announcement for households that the energy price guarantee cap would be extended until 30 June 2023 , businesses were left hanging with the switch from a cap to a discount scheme from April creating an environment of increased uncertainty.

The rise in energy prices boosted interest in sustainable supply, with companies exploring solar, heat pumps and other technologies in a bid to contain costs, despite constraints presented by the availability of finance. We debated this topic at an event at Chartered Accountants’ Hall (Energy and the affordability of net zero) and provided support through ICAEW’s Energy crisis hub.

Q2: war for talent, access to finance

Labour challenges, prevalent across all sectors, dominated member discussions. Although a slightly improved situation to Q1, businesses nonetheless reported losing staff to competitors, in some cases for 20% salary increases. Practice firms were among the worst hit and the ability to service burgeoning demand for audit, accountancy and advisory services was hampered by skills shortages.

Businesses were forced to get creative to incentivise and retain staff. Where possible, bonuses were prioritised over pay awards, with some organisations offering reduced hours and free food. Hybrid working continued to present challenges and was a regular topic of discussion.

Meanwhile, members raised concerns over the ability to access finance. Rising interest rates made finance more expensive and squeezed margins reduced businesses’ cash reserves. The subject of getting SME investment back on track was discussed in depth in this ICAEW Insights podcast episode. 

In April, following the release of ICAEW’s Q1 BCM, ICAEW hosted The Economists’ Debate with an illustrious panel of speakers – Liz Barclay, UK Small Business Commissioner; Kitty Ussher, Chief Economist at the Institute of Directors; Tom Pope, Deputy Chief Economist at the Institute for Government; and Suren Thiru, ICAEW’s Director of Economies – answering questions on the economic climate.

The event also allowed us to take the economic temperature across the UK through 11 regional breakout sessions. ICAEW members from a diverse range of sectors told us how they were reacting to economic conditions and gave us their take on the opportunities and risks for businesses.

It was evident from these discussions that the diversity of UK regions presents huge opportunities for growth, with ICAEW Chartered Accountants having an important and valuable role to play.

In June, members called for more certainty and stability. Increasing concerns over the impact of the cost-of-living crisis on discretionary spend was the cause of much of this uncertainty, especially for consumer-facing businesses. 

With domestic sales under pressure, members reported looking to international markets for revenue opportunities. Two factors made this difficult. First, many of the challenges facing the UK were global issues. Second, many members cited navigating international transactions as problematic. In particular, members in smaller businesses bemoaned a lack of resources in comparison to larger organisations with “the staff and resources to deal with the level of paperwork required”. 

Q3: labour and access to finance woes persist

With the onset of summer, concern over energy costs had somewhat abated, but members expressed concerns about contract terms ending and the potential impact of a difficult winter on future energy prices. 

Labour challenges remained an ongoing issue, with work ethic, following the pandemic, highlighted across all sectors: “People have got used to working in a more relaxed way, albeit in a much tougher environment.”

Access to finance was a growing source of concern, especially interactions with banks, prompting ICAEW to respond to HM Treasury’s Call for Evidence: SME Finance.

Meanwhile, member concerns regarding regulation contributed to ICAEW’s Better Regulation project, to assess how the UK’s regulatory regime might be improved. The project included interviews with ICAEW members and a round table discussion at Chartered Accountants’ Hall attended by the UK Small Business Commissioner, where challenges presented by late payments were highlighted. 

Q4: inflation, interest rates and growing uncertainty

In October, inflation, rising interest rates and the forthcoming Autumn Statement and general election took their toll on confidence. As one member noted, uncertainty was proving a barrier to growth: “Everyone will sit on their hands until the election.”

Across multiple sectors, interest rates were having a noticeable impact on consumer spending and business investment. Although businesses appeared better able to adapt than individuals, much depended on the level of debt exposure.

Members welcomed tougher measures announced to tackle the issue of late payments, but some questioned whether they went far enough. A manufacturing sector member in the Midlands commented: “It’s the larger players on 120 days that knocks things out. We need legislation as big companies do whatever they want.”

In November, ICAEW’s second UK Regions Economic Summit with Huw Pill, Chief Economist at the Bank of England, discussed regional risks and opportunities, sources of growth and initiatives needed to drive growth. The overarching call was for more certainty in the economy and with government policy.

Ahead of the Chancellor’s much-anticipated 22 November Autumn Statement, ICAEW submitted a representation to HM Treasury containing eight policy recommendations. Members welcomed announcements that brought more stability and certainty, at least in the short term. Capital expensing made permanent was seen as a positive move, although cited as more relevant to larger businesses with funds to invest.

Frustration and confusion across the tax system, notably R&D tax credits, prompted calls for more simplification. Fiscal drag was highlighted by members as an issue in need of resolution and something that will negate any benefit from the reduction in the rate of National Insurance. The consensus from members across the UK was that the Autumn Statement’s focus was on winning over the electorate rather than helping business and driving growth.

The impact of the rise in the National Living Wage and the knock-on effect of maintaining pay differentials emerged as key concerns, particularly among members in the charity, construction, farming, healthcare, hospitality, manufacturing and retail sectors. A practice member in the Midlands commented: “It will be challenging for SMEs to pay this while the economy remains fragile.”

Throughout this year, we have connected 47 younger members with seven senior finance leaders through our Inspiring Future Leaders 2023 programme. It has certainly been inspiring to hear how the value and importance of the ACA qualification has been a consistent theme. What’s clear from my discussions with members working in organisations of all sizes and sectors is the resilience of business. Thank you to all ICAEW members who have attended events, contributed to discussions and provided insight during 2023.