Things can only get better… eventually

Dominic Bourquin

Dominic Bourquin, Head of Tax at MHA Monahans shares his thoughts with Business Leader on the current ‘dark clouds looming over the country’, what could be introduced by the Chancellor to help, and why we should remain positive about the future.

Last month’s rise in interest rates wasn’t a complete shock. By any measure, inflation is already high – and rising – and with the Consumer Price Index (CPI) expected to hit 7% by the end of the year, this move by the Bank of England was certainly coming.

But just because this change was on the horizon, doesn’t mean this bitter pill will be any easier for already stretched households to swallow.

The dark clouds looming over the country in the form of energy price increases, rising fuel and food costs, and the threat of war in Ukraine mean that these pressures are unlikely to ease in the short-term. And, with tax rises coming in April, many will feel financially squeezed from all directions.

How does the Chancellor’s plan help?

The Chancellor, Rishi Sunak, recently announced limited Council Tax assistance for the most disadvantaged households, plus a one-off payment by energy providers to all consumers. This does provide some small respite, however the one-off energy provider payments will be added to consumer bills in later years, so this is a cashflow advantage only.

Some commentators do think the Chancellor has some wiggle room either to postpone or cancel completely the 1.25 per cent increase to National Insurance coming in April – the Health and Social Care Levy. This would undeniably provide relief to the household purse strings, but without funding from elsewhere, it would likely put unmanageable strain on the health and social care system.

What does this mean for businesses?

Many organisations will have an annual pay review with their employees, with rises in inflation typically providing one marker for a salary increase. However, the governor of the Bank of England, Andrew Bailey, has urged employees not to demand huge pay hikes in order to help control inflation.

Mr Bailey has already come under fire for these comments, with Sharon Graham, the general secretary of Unite saying, “Why is it that every time there is a crisis rich men ask ordinary people to pay for it?” There is certainly a danger here that employees will see themselves as bearing too much of the burden. As Unite said, it’s important that if employers can pay, they do.

Nevertheless, employers are undoubtably going to feel a pinch too. Those with loans will end up paying more, and HMRC have announced that interest charges for late payments will rise in line with the Bank of England’s base rate. Financial forecasting will be more important than ever in the months ahead.

It’s always darkest before the dawn

Currently we have a perfect storm of rising prices, rising inflation and rising taxes. The question many are posing is this: can the Government really afford to help anyone after borrowing hundreds of billions to combat Covid? Some might go so far as to say that given the current political climate, the Government cannot afford not to intervene further to help households weather the worst effects of this storm.

It is a similar situation for business leaders. Considering the current jobs market, and the so-called ‘Great Resignation’, organisations must be seen to be taking on their fair share of the squeeze.

Following every period of recession in history there has been a period of significant economic growth. The Chancellor’s Autumn 2021 Budget certainly seemed to be one of cautious optimism. However, one thing now seems certain: things will get worse before they get better.

Monahans are on hand to help businesses navigate changing economic landscapes. For help and advice, please get in touch.