Throughout August, ICAEW members have continued to share their challenges and insights on business conditions with the business team, captured through our regional, national and international networks. 

There was a positive uptick in business sentiment in the run-up to the general election, as highlighted by ICAEW’s Business Confidence Monitor (Q2). However, two months on and there are signs that confidence levels may have dipped.

With the new government’s first Budget set for 30 October and speculation rife as to what it may or may not contain, any uncertainty that had been alleviated by the calling of the general election appears to be creeping back ahead of what will undoubtedly be an important fiscal event. 

In its requests for the incoming government, ICAEW’s manifesto called for more certainty and stability. This remains a priority for members and continues to underpin many investment decisions on capital, technology and people.

Market conditions

The recent reduction in the Bank of England interest rate was welcomed by members working in construction. A fall in the cost of capital and mortgage rates and the potential for future rate cuts is positive for the sector. 

Despite this, a member based in the East of England cautioned: “Larger schemes have been put on hold because of concerns and uncertainty about the tax effect of the Autumn Budget. Summer is typically quiet, but it’s more quiet than usual.”

Bad weather earlier in the year had been detrimental to the prospects of members working in retail and hospitality. In line with the latest ONS retail figures, members now report a more positive outlook. Food retail and purchases linked to outdoor activities in particular have benefitted from warmer weather. 

Growth is a key focus for government and a regular topic in member discussions across all sectors and regions. An ICAEW scale-up series of webinars will commence on 25 September. A member in the South West questioned whether, as a nation, our expectations for growth have changed: “I wonder how much confidence is that we’re getting back to pre-COVID levels as opposed to being confident we’re growing beyond that.”

Nonetheless, investment appetite remains fragile. A practice member who advises clients across multiple sectors said: “Relatively low levels of investment in the UK compared with other countries is a key factor contributing to weak productivity growth.”

Infrastructure is also a key determinant of productivity. Members in the Scottish Highlands and the South West raised concerns over transport links, noting that “reliable journey times would be a real boost for the economy”. 

Frustrations are likely to be linked to an increase in tourist traffic over the summer months, but also the ability to attract and recruit staff is contingent on workers being able to get to site. Plans for a new gigafactory in Somerset are seen as a great opportunity for the region but “only if workers can get there”.

Skills/labour market

Despite reports that labour market pressures have started to soften, growing numbers of members have this month reported challenges with the retention and recruitment of staff. 

Members in larger firms cited visa requirements for overseas staff as hampering the ability to recruit a diverse workforce with the right skills. Demand for skills in the energy sector and the time needed to train personnel appears to be driving some wage inflation. 

Demand for skills in the nuclear industry in the East of England has reduced the availability of labour for other sectors. One member in construction said: “Challenges in retaining staff – Sizewell is offering lucrative packages to work onsite – coupled with an ongoing skills shortage in the sector and the time it takes to train someone to be technically competent are making things difficult.” 

Members express mixed views about the impact of the Employment Rights Bill and potential future increases to the national living wage (NLW). CFOs in the South West don’t necessarily believe that zero hours contracts are being used by employers to treat staff badly: “In many circumstances, they suit both employers and employees especially in seasonal businesses or those where demand fluctuates. Students also benefit in terms of fitting work around study, as do parents who want flexibility around childcare or other care duties.”

A practice member with a sizeable annual intake of school leavers and graduates said the knock-on financial impact of April’s rise in the NLW has been to force an increase in client fees. However, it is recognised that increasing prices is potentially more difficult in other sectors, including retail and hospitality and there is concern over the impact of future increases. 

Looking ahead to the Budget

ICAEW is urging the government to use its first Budget to commit to radical simplification across all areas of the tax system. ICAEW’s Tax Faculty has previewed the range of measures that might be included on 30 October. 

The planned publication of a roadmap for business taxation is welcome, but robust consultation and engagement will be crucial for it to be effective. Following the Chancellor’s announcement of a £22bn black hole in public finances, policy recommendations will need to demonstrate a clear return on investment to the Exchequer.

The Budget may also include an update on government plans for business rates following a manifesto commitment to scrap the current system. ICAEW has prepared a briefing for officials, which calls for improved use of data and technology to streamline business rates and reduce the administrative burden for businesses.

Other commitments the government is yet to progress include the establishment of a Regulatory Innovation Office and steps to tackle late payments. More detailed plans on the government’s industrial and trade strategy are expected in the autumn, as well as a more detailed strategy on AI.

We welcome member insights on priorities ahead of ICAEW’s budget representation. Please share your thoughts directly with Chris Lane, ICAEW’s Senior Policy Manager (chris.lane@icaew.com) or via the form on the ICAEW Member Insights page on the website by 3 September 2024.