While Liz Truss was unable to outlast a lettuce during this catastrophic reign as PM, her ill-feted economic policy arguably died an even quicker death at the hands of new Chancellor Jeremy Hunt.
Replacing Truss’ close friend Kwasi Kwarteng, Hunt completely reversed virtually all of the Truss’ “bold” economic plans, leaving the PM bereft of credibility and paving the way for the ascent of Rishi Sunak in her place.
But what did Hunt’s intervention include, and how have businesses been affected? Let’s get into it!
What Did Hunt’s Economic Announcement Contain?
Of course, the pledge to remove the 45p tax rate for higher earners (above £150,000) had already been scrapped before Hunt was made Chancellor, but he wasted no time in reversing other measures following his appointment.
But what other pledges did this include? Well, the pledge to reduce the base rate of tax by single percentage point from 20% to just 19% has gone, with this remaining in place until “the economic conditions allow a reduction” according to Hunt.
Truss’ previous mini budget had also planned to scrap the scheduled hike in corporation tax, which was set to rise form 19% to 25% in April next year.
However, Hunt has confirmed that this is now set to go ahead, meaning that businesses won’t be passed untargeted tax breaks ahead of the new financial year.
How Have Businesses Been Affected?
The good news is that the markets have stabilised somewhat since the mini budget was reversed, with the pound (which had sunk to an all-time low against the dollar) recouped some of its losses against the greenback.
Similarly, bonds and pensions also stabilised as the markets began to enter more serene waters, while this was also helped by the Bank of England’s huge cash injection into these markets. This was good news for investors and wealth managers, while the markets should continue to stabilise in the near-term.
However, there remains a sense that businesses are continuing to face the long-term effects of economic uncertainty, while also struggling with rampant inflation (which peaked above 10% again in September), soaring energy bills and increased borrowing costs as the base rate continues to rise.
The decision to hike corporation tax to 25% will also hit firms hard, especially those are already seeing their margins squeezed and struggling to recover from Covid-19.
What’s the Outlook for 2023?
Ultimately, things aren’t likely to improve markedly (or potentially at all) in 2023, notwithstanding the slight reduction in market tumult and volatility.
Goldman Sachs are forecasting five consecutive quarters of negative growth in the UK through Q4 2022 and all of 2023, for example, as the region enters a technical recession and sees the business landscape falter.
Overall, this recession won’t end until some point in 2024, as inflation falls back in line and the base interest rate (and borrowing costs) also depreciate.
