What can businesses expect from the next Budget? 

With many UK businesses still feeling the effects of the Covid-19 pandemic, Government support has never been more important. And with the Chancellor’s Budget set to be outlined on 27th October 2021, plenty of professionals will be waiting to see how it will support them to ‘build back better’.

While we don’t have a crystal ball, our energy industry insiders can make some informed predictions about what energy professionals could expect to see in this year’s Budget – such as…

Clarity around decarbonisation support

As the UK Government’s deficit now stands at around £304bn – around 14.5% of GDP – the Chancellor is likely to strive to keep further borrowing to a minimum. However, with COP26 set to take place in Glasgow this year, and key policies like the Heat and Buildings and Net-Zero Strategy recently released, it’s reasonable to assume that the Chancellor will confirm the significant funding that has been committed to bringing these policies to life.

The Heat and Buildings Strategy, for example, announced a £3.9bn funding package to support the UK’s transition to low-carbon heating. Within this package is a £450m boiler upgrade scheme which would enable homeowners and small businesses to claim grants of up to £5,000 to go towards the upfront cost of a new heat pump if they are replacing a gas boiler. While this is good news for the 90,000 homeowners it is expected to help, the Strategy did not explicitly outline how the Government plans to support larger businesses not already captured by a decarbonisations scheme, who are looking to make the switch from gas central heating to low-carbon heating solutions. Decarbonising their heat emissions is a key challenge for many organisations with net-zero targets in place, and so we hope to see further funding set aside for those businesses to address emissions in this area – although whether this will appear in the Budget is unknown.

The Net-Zero Strategy also contains various funding packages intended to support decarbonisation across different sectors. We hope to see further clarity about where exactly this funding will go in the Chancellor’s Budget, as much of the funding announced in the Net-Zero Strategy was fairly high-level. The Strategy committed to providing £620m for zero-emission vehicles and EV infrastructure, for example, but it didn’t disclose how this would be split. As it’s rumoured that the Chancellor is keen to reduce the current ‘plug-in’ vehicle grant, which is (currently worth up to £2,500), it will be interesting to see where this funding goes. Businesses across all sectors will certainly be keen to understand what funding they will be able to access in order to play their part in the UK’s Net-Zero Strategy.

Tax changes

It’s only been a month since the Government announced that National Insurance contributions would increase by 1.25% from April 2022, as well as an increase on income tax rates on dividends – so whether or not we will see further tax increases in the Budget is debatable.

Businesses have known that corporation tax will rise substantially in 2023, from 19% to 25%, since the Budget in April. However, some sectors could see business rates reduced in order to help them to recover from the economic downturn. The retail sector, for example, recently called on the Government to reduce the business rate multiplier by 30% to help them to bounce back post-Covid-19. While it’s unlikely that we’ll see cuts this large, we may see additional reliefs made available to the retail sector.

Deloitte also believes that we could see new tax incentives introduced to encourage private sector investment in areas such as Net-Zero. With the eyes of the world on the UK as COP26 approaches, the Government may be ready to conclude their review of the legislation around the assessment of Plant and Machinery. There are rumours that green energy plant could be made exempt from business rates, which could create an opportunity for businesses to invest in renewable on-site generation. Businesses can already claim a ‘super deduction’ tax incentive for new qualifying plant and machinery, which includes some green and energy efficiency technologies – find out more about the super deduction incentive here.

Pay increases

After Boris Johnson announced that his goal is to create “a high wage, high skill, high productivity economy” at the Conservative Party Conference earlier this month, it’s expected that the national minimum wage will be increased for the second time this year. It’s believed that the Chancellor could increase the minimum wage from £8.91 to £9.42 per hour for workers over the age of 23 – a rise of over 5%. This change would see the national minimum wage increase to almost Living Wage levels (the current living wage is £9.50 per hour). With a growing number of businesses prioritising social value, sustainability-minded organisations are likely to welcome this measure – although some may have concerns about how they will afford expenditure increases in the current economic environment.

It’s also been reported that the Chancellor is set to end the public sector pay freeze, which has affected over 1.3 million workers since it was introduced in the Autumn 2020 Budget. While frontline NHS workers were exempt, civil servants, police, firefighters, teachers, council workers and members of the armed forces have all been subject to a pay freeze for the past year.

Energy cost cuts

With energy costs still at record highs, it’s believed that the Government is considering a cut to the 5% VAT rate on household energy bills to help families to get through the winter ahead. However, we haven’t heard anything about a similar cut for the VAT on businesses’ energy bills – which will be disappointing for the many organisations that are struggling to cope with spiralling energy costs.

Demystifying Budget benefits for businesses

Inspired’s experts will be closely monitoring the Budget on 27th October, so that they can explain what it means for your business. Follow us on LinkedIn to make sure that you don’t miss our updates on the day.