A Labour government and UK business

With Labour now nearly a quarter of the way into its first 100 days in power, what does this change in government mean for UK businesses up and down the country? Greg Taylor, Head of Banking & Finance, MHA, takes a view.

Labour’s business taxation conundrum

The conundrum for this new Labour government is how do you avoid significantly raising taxes, especially in the short term, while generating the income to pay for the investment required to tackle the challenges Great Britain is facing.

The Labour leadership has heavily highlighted economic growth, with the party asserting that it is the best and sole path for the UK economy to generate the necessary resources to tackle the numerous challenges.

While we await further details on the Prime Minister’s plans to achieve these goals and how the new government will support UK businesses, let’s look at what we know about Labour’s policy priorities.

Rachel Reeves, Great Britain’s first female Chancellor of the Exchequer, has said that Labour won’t raise taxes on working people to promote growth. Labour will implement “clear rules” on tax and spending policies to ensure economic stability.

To provide greater stability in business taxation, the new government plans to cap corporation tax at 25% for the entire parliamentary term. This measure aims to offer predictability for businesses, in the hope it will facilitate long-term planning and investment decisions to drive growth.

Additionally, Labour will roll out a new ‘tax plan’ that allows businesses to fully deduct the cost of their equipment and other capital investments.

The Full Capital Expensing scheme, which was first introduced under the Conservatives in the immediate aftermath of Covid, is to be made permanent and aims to help businesses reinvest and update their operations. Annual investment allowances will also be increased to make it easier for small businesses to afford these investments.

Despite ruling out increases to other taxes like VAT or income tax, one tax that a new Labour government could increase is Capital Gains Tax (CGT).

It’s widely thought that CGT rates will likely increase sooner rather than later due to the need for higher tax revenues should economic growth slow, CGT is a key lever for promoting investment and growth.

Any changes to CGT rates could be implemented quickly so business owners and investors should consider the potential implications of this when planning.

'Levelling up' business growth opportunities

Many reports, including the Treasury Select Committee inquiry on access to business finance, have highlighted the difficulties SME’s in particular face in accessing the funding they need to grow, this is especially acute outside of London.

To address this, Labour plans to reform the British Business Bank (BBB), which is well overdue in my view, by giving it a stronger role in supporting and investing in small businesses beyond the Capital.

No specifics about the shape and scope of this reform are known yet, or how funding will be allocated more fairly, but when the details are known we’ll be scrutinising them.

Eliminate late payment of invoices

Late payment of invoices has been a big issue for many SME’s for as long as I can remember, and it can have a critical effect on a business’s cashflow. Although solutions like Invoice Finance can really help here, knowing when your invoices will be paid, and having the ability to rely on fixed dates for payment would drastically help all businesses.

Sadly, many invoices are still settled late, putting unnecessary pressure on cash.

Labour has pledged to eliminate late payment of invoices to small businesses by requiring large companies to report their payment practices in their annual reports. This measure is expected to
‘name and shame’ late payers and hold them more accountable.

A new UK and EU relationship

Labour repeatedly said in the build up to the election that it would take a more “optimistic” approach to Britain’s relationship with the EU. While they haven’t given specifi cs of what that optimistic approach might mean in reality, they have said that they plan to help small businesses export more by creating a trade strategy with straightforward advice for new exporters.

What should we expect next

The new Labour government, the fi rst one in 14 years, has announced the Autumn Budget for 30 October. Business owners and management teams should expect a wide range of changes which will affect their businesses both positively and negatively but taking the right professional advice can help mitigate these changes and possibly turn them into opportunities.

Improving access to finance

With a Labour government pledging to focus on “putting economic growth at the heart of its legislative agenda,” their election manifesto and the recent King’s Speech have outlined their goals for this term in office, some of which we’ve already touched upon. However, the UK business sector is eagerly awaiting details on how these ambitions will translate into concrete actions that support their own growth objectives.

A key element for any business in turning plans into reality is access to fi nance, but accessing finance is becoming more difficult for a large number of SME’s since the pandemic. The Treasury Select Committee inquiry into access to business finance called for urgent action to help SME’s seeking finance.

We need to see this Labour government take measures to improve accessibility to finance, ensure business owners and management teams are aware of alternative funding options, and provide greater competition in banking options.

Labour has already pledged to strengthen the SME bank referral scheme to support more businesses in securing financing from alternative non-bank sources, which would be a great starting point, in my view.

MHA can help

At MHA we firmly believe that SME’s are the backbone of the UK. Giving companies more straightforward access to finance and encouraging more competition in the banking market is fundamental in getting the economic growth we all want to see.

There are a wide range of funding strategies that can help overcome some of the challenges mentioned in this article, such as funding your tax to provide a smother cashflow, or invoice finance to help with the late payment of invoices.

For any queries, or to speak with one of our specialists in the Banking & Finance team, please get in touch: fi[email protected] | 01628 955915 | mha.co.uk