Autumn Statement 2022: what it means for business

Alongside the Autumn Statement the Office for Budget Responsibility (OBR) released its economic and fiscal outlook.

The OBR have forecast that the UK has already entered a recession and downgraded its forecast for growth next year from 1.8% to –1.4% and 1.3% in 2024 (from 2.1% in March).

Inflation is forecast to peak at 11.1% in Q4 this year before falling sharply next year, eventually returning to its 2% target by 2027-28.

Despite the tax rises and spending reductions announced, government borrowing is set to rise this year to just over 7% of GDP, before falling back to just over 2% by 2027-28. Compared with its March forecast headline, debt is higher as a share of the economy in every year, and by 17% of GDP in the final year.

Public sector net debt to GDP ratio rises from 97% of GDP last year to 107% in 2023-24, then falls over the remaining 4 years to 99% by 2027-28.

The government also set out two changes to the fiscal rules.

First, underlying debt is required to fall after five years rather than three.

Second, government will bring overall borrowing below 3% of GDP by the end of the forecast (2027/28), instead of the previous goal of a balanced budget by 2025-26. On the current forecast the government is set to meet both of its fiscal rules.

Initially there was a largely muted reaction from the markets to the Chancellor’s Autumn Statement and OBR forecast. The pound dipped slightly in response to the weak economic outlook, while gilt yields  rose slightly and equity markets traded sideways. Overall, UK asset prices remain broadly in line with their pre-“mini”-Budget levels.

The CBI focus is on the business taxes most likely to impact across sectors, business sizes, and models. There are more details on energy windfall taxes and vehicle excise tax on electric vehicles in the Decarbonisation & Energy section, and more on R&D tax credits in the Innovation section.

The threshold at which employers start paying National Insurance Contributions (NICs) on their employees’ salaries has been frozen for the next five years. As long as wages are rising, employers will pay more NICs each year. This adds additional costs to affected businesses at a time when they are facing inflationary pressures and chronic labour shortages. It could discourage businesses from hiring new employees or offering employees more hours at a time when many are feeling the impact of the cost of living crisis. On the other hand, businesses will welcome not having to implement another in-year change to their payroll systems.

The CBI has successfully argued for: 

• Freezing the business rates multiplier for another year, protecting businesses from rising inflation, worth £9.3 billion over the next five years
• Reforming transitional relief: for businesses seeing lower bills as a result of the revaluation, the government will make sure they benefit straight away from that decrease in full by abolishing downwards transitional relief caps. The government also announced a £1.6 billion scheme to cap bill increases for businesses who will see higher bills as a result of the revaluation.

The business rates package also includes: welcome extended and increased reliefs for retail, hospitality, and leisure businesses; and support for small businesses which would otherwise lose relief after the next property revaluations come into effect.

For further information on the announced Business Rates changes, see the government factsheet.

Until today, businesses faced an inflation-based hike in business rates bills over 10.1% at the same time as a revaluation in April 2023 – with even those whose properties have lost value not benefiting immediately under downward transitional relief rules.

Freezing the multiplier is essential to prevent further inflation and ensure businesses do not face much higher bills from April 2023. Removing downwards transitional relief means benefitting from lower bills sooner.

Businesses should receive a new bill reflecting these changes in early 2023 for the 2023-24 tax year. Additionally, freezing the employer NICs thresholds means no further updates will be needed to thresholds in payroll systems.

The government recognised the importance of capital investment to growth in its decision to protect public capital spending, but private business investment is also key to drive growth – the lack of announcements on a successor to the super-deduction was disappointing.

The CBI will continue to call for full expensing, so businesses can see the cashflow benefit of the investments they make immediately.

Energy taxes

The Energy Profits Levy will be extended from January 1^st, 2023 - increasing the rate from 25% to 35% and will remain in place until March 2028. To support continued investment, the existing cash value of the levy’s investment allowance will be maintained, remaining at 80% for decarbonisation expenditure and reducing from 80% to 29% for non-decarbonisation expenditure.

The Electricity Generator Levy will be implemented from January 1 2023, and will remain in place until March 2028. This introduces a new 45% tax levied on extraordinary returns from electricity generation above the benchmark £75MWh. This levy will not apply to electricity generation under Contract for Difference contracts with the Low Carbon contracts Company (LCCC).

For further information on the announced Energy Taxes, see the government factsheet.

Support on energy bills

Government has acted to support domestic energy consumers beyond March 2023 by extending the Energy Price Guarantee for 1 year from April 2023 to April 2024. The price cap for the typical household in Great Britain will rise from £2,500 to £3,000 and will automatically be applied through energy suppliers. In response to the raise in the price cap, the most vulnerable will receive an additional uplift.

Equivalent support will be provided to eligible households in Northern Ireland through the Energy Bills Support Scheme NI.

Also announced was a new long-term commitment to drive improvements in energy efficiency to bring down bills for households, businesses, and the public sector with a national ambition to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030 against 2021 levels.

To support this government reaffirmed its commitment of £6.6bn, and new funding from 2025 to 2028 of a further £6bn to deliver the new national ambition. To achieve this target the government announced a new Energy Efficiency Taskforce (EETF), charged with delivering energy efficiency across the economy.

Other

The Government reaffirmed its commitment to the Sizewell C nuclear power plant and highlighted the importance the project plays in the pathway to greater energy independence, net zero and creation of jobs.

Regarding changes to Electric Vehicles, the government announced two changes. Firstly, that Vehicle Tax Rates will be introduced on Electric Vehicles (EVs) from April 2025. This means electric cars, vans and motorcycles will begin to pay Vehicle Tax Rates in the same way as petrol and diesel vehicles. The government will legislate for this measure in the Autumn Finance Bill 2022.

Further, the government will legislate in the Spring Finance Bill 2023 to extend the 100% First Year Allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes, and, to 5 April 2025 for income tax purposes. This will ensure that the tax system continues to incentivise business investment in charging infrastructure.

Finally, we saw the government confirm its commitment to the Glasgow Climate Pact, asking for a 68% reduction in emissions by 2030.

The moves to expand windfall taxes in the energy sector will send a negative signal to investors at a critical time. Not only do we need significant investment to deliver energy security and our decarbonisation goals, but the UK risks losing out to other countries on economic opportunities associated with the transition.

Businesses want certainty that the taxes are time-limited and focused on genuine unexpected windfalls rather than a fair reward for risks taken.

The government rightfully recognised the importance of tackling climate change and the opportunities for growth in low carbon energy.

However, to take this commitment further a statement of intent that the government is acting to make markets in the green economy, particularly by introducing business models for hydrogen production and carbon capture, utilisation and storage through the Energy Security Bill is needed to encourage investment these markets.

Further, progress on stated aims to streamline planning for key low carbon infrastructure was missing from the statement, including cutting consent times from four years to one for offshore wind projects.

The CBI will continue to engage with the Energy Bill Relief Scheme and the upcoming announcement on what support for Business will look like following April 2023. The Energy Bill Relief Scheme is providing welcome support this winter and will keep the doors open for many small firms across the country.

However, businesses see a cliff-edge looming when the scheme expires in April 2023 and going forward, firms facing existential threat or fierce competition from subsidised firms overseas will need follow-on support from that point. Businesses will be looking to the outcome of the review and further information regarding the continuation of the EBRS, to best understand the impact any amendments will have on their Business.

The CBI will continue to engage with government to encourage a consultation into the future road pricing following the introduction of vehicle tax rates for electric vehicles.

The government announced that the Department for Work and Pensions (DWP) will conduct a review of workforce participation following the increase in the number of economically inactive people since the start of the pandemic. A review is welcome, and the CBI has been calling on the government to consider how to get some of these people back into work, including interventions to minimise inactivity due to ill-health, and reforming unaffordable childcare. Doing so is a key first step the government can take to begin addressing labour shortages across the economy.

In addition, the government announced that the National Living Wage (NLW) will increase by 9.7% to £10.42 an hour for those aged 23 and over from 1 April 2023. This is in line with the target for the NLW to reach two-thirds of median earnings by 2024. While this was expected, the rise comes as inflation is also increasing the cost of doing business, meaning some firms may struggle to afford the increase.

The government also announced the appointment of an adviser on skills – Sir Michael Barber. His role will be to review the implementation of reforms set out in the Skills for Jobs White Paper, including T Levels, Higher Technical Qualifications, Apprenticeships, Skills Bootcamps, and the Lifelong Learning Entitlement.

Beyond looking at the barriers to workforce participation, there were no announcements of measures to tackle ongoing labour and skills shortages. The CBI has continued to highlight that shortages are holding back growth across the economy, calling for urgent action to increase labour supply through proportionate immigration reforms and reforming unaffordable childcare. The CBI has called for this to be paired with measures to boost productivity in the long-term by creating a skills system that is responsive to economic need.

Whilst a review of the government’s approach to skills reform is an opportunity to highlight the needs of businesses in the skills system, the government didn't make any announcements on reforming the Apprenticeship Levy or on improving workforce training. The CBI has continuously made the case that Apprenticeship Levy regulation is too rigid, resulting in inefficient or unused funding, and that reform of the Levy into a more flexible Skills Challenge Fund would help firms to invest in their long-term skills needs.

The CBI will engage with DWP throughout their review into workforce participation and continue to call for action to address ongoing labour and skills shortages. In the meantime, the government’s independent experts (the Migration Advisory Committee) are expected to review the Shortage Occupation List imminently.

The CBI will continue to engage with the Treasury and Department for Education on Levy reform and the need for a more responsive Skills Challenge Fund, to enable businesses to access a wider variety of high-quality, modular training options in response to their current and emerging skills gaps.

Overall, the Autumn Statement will have brought some comfort for those operating in and around the UK’s health service, with departmental spending protected and areas of specific concern (like social care) receiving valid attention. Announced funding which aims to ensure the NHS can handle inflationary pressures, as well as a review into its long-term workforce challenges, will be welcomed. Within that, a commitment to review Integrated Care Board (ICB) autonomy and accountability will encourage businesses engaged with ICBs across the UK.

Announcements around R&D (see the Innovation section for full details) will have impacts on life sciences sectors and commitments to regulatory reviews for those sectors alongside manufacturing will be welcomed. When combined with the commitments to review the drivers behind inactivity for the Department of Work and Pensions, the measures will start to better understand the role of health interventions in labour market resilience.

The CBI have long been engaged on life science regulation and NHS system/workforce pressures, though it has withheld public asks of government on the latter. On the former, the CBI has focused more on domestic regulators like MHRA (Medicines and Healthcare products Regulatory Agency) capacity this year, so no clear win can be drawn.

The NHS is the UK’s single customer for many firms across the health & life science sector. This relationship only works effectively with a well-resourced health service which has capacity to deliver on its Long Term Plan commitments to be an innovation partner to industry. As such, headline funding increases are positive for business. Further still, the UK’s social care system has real economic and workforce impacts for those involved in care giving or managing backlogs.

The government decided to avoid any specific reference to movement or intentions on pricing model rates affecting life science investors, i.e. through the Voluntary Pricing and Access Scheme (VPAS) which is co-developed between Department for Health and Social Care (DHSC) and the NHS.

We also failed to see any specific reference to domestic regulators and the role that they play in the health and life science sector’s international competitiveness. The MHRA and National Institute for Health and Care Excellence (NICE) can play a globally competitive role as the coveted bodies increasing the UK’s per capita utilisation rate of life saving products, as well as widening the levels of approved patient populations.

The CBI will continue to work with DHSC, Office for Health Improvement and Disparities (OHID), the NHS and BEIS (Business, Energy and Industrial Strategy) on the UK’s current life science investment environment. This will specifically include a timetable to accelerate the resourcing required to deliver on commitments from both the Life Science Vision and the UK Clinical Research Delivery Strategy. The CBI will concurrently maintain a close working relationship with UK regulators.

Alongside this, to complement the committed inactivity review, the CBI will continue to work in partnership with the NHS, DWP and, DHSC on data collection and analysis across the economy on the scale and quality of private sector health provision. We will do so through the endorsement of the Work Health Index.

A number of commitments to further devolution:

• New mayoral deals with Suffolk County Council and plans moving forward for a mayoral deal with Cornwall
• Plans for an expanded Arth East mayoral deal were mentioned, although it is felt that this deal is ready to go, and so it would have been good to see this agreed in the Statement, rather than just referenced
• Commitments to sign Trailblazer Devolution deals with Greater Manchester and West Midlands Mayoral Combined Authorities
• Discussions about single settlement deals for these regions, enabling more decisions to be made at a regional level, rather than going back and forth to Whitehall.

A re-commitment to major energy and infrastructure investment with projects the CBI has supported including HS2, Northern Powerhouse Rail, East West Rail and Sizewell C.

Continued commitment to levelling up with a further £1.7bn allocation for a second round of investment funds, and a revisiting of investment zone programmes to be more focused and supportive of innovation cluster activities, which has the potential to power up regions.

Devolution has the potential to give more powers and funding to regions and allow them to drive economic activities based on local knowledge of what is best for their region.

Clarity and specificity on:

• Which version of Northern Powerhouse Rail is intended to be delivered
• Investment zone incentives – how they will work and from when
• Round 2 levelling-up fund – will it follow the same process as round 1, with local authorities having to submit bids based on parliamentary constituencies?

Alongside the Autumn Statement, the government has published a consultation response setting out the final reforms of Solvency II. These reforms are designed to unlock tens of billions of pounds for investment across a range of sectors.

Following the decision to proceed with the Corporation Tax rate increase to 25% from April 2023, the changes to the Bank Corporation Tax Surcharge, which are legislated to take effect from the same point, will go ahead. This means that from April 2023, banks will be charged an additional 3% rate on their profits above £100 million.

The commitment to requiring banks to pay the surcharge only on profits above £100m will be welcomed by mid-sized and challenger banks, to support their growth and continue to increase competition in the banking sector.

The government confirmed its work to review retained EU law in key growth industries, including financial services, to identify changes that can be made over the next year which have the greatest potential to unlock growth. This work is already underway in several of these sectors, including the government’s ambitious programme of reforms in financial services.

The CBI has been actively calling on government to finalise Solvency II reforms, so it is welcome they have published their response to the consultation and have worked closely with the PRA to finalise their reforms.

The CBI also called for further action on the Banking Surcharge to ensure the UK doesn’t become uncompetitive.

The CBI will work closely with members and financial services trade associations to work through the detail of Solvency II reforms and understand what they might mean for investment decisions in practice.

The CBI will also continue to feed into the government’s work on reforming financial services to unlock growth.

The government has made clear the significance of strong and supported infrastructure investment across the country, including road, rail, broadband, and 5G.

By confirming that capital spend will be protected, giving the UK Infrastructure Bank a statutory footing, and committing to deliver infrastructure projects such as Sizewell C, HS2, NPR, EWR, and the National Hospitals Programme, the government has given business the confidence it needs to invest, supply, and construct the key infrastructure to help the country grow. On a local level, Round 2 of the Levelling Up Fund will give local authorities the resources to deliver vital infrastructure for local communities.

Combined with confirmed maintained spend for public services and a commitment to deliver a refreshed Integrated Review for the defence and security sector prior to the Spring Budget, the government has given business a solid foundation to begin planning for the future.

There was nothing about how to drive house building across the UK, which is surprising given the confirmation of stamp duty extension. Similarly, promises to reduce building and industry energy consumption are welcome but fails to address a fundamental challenge around the skills needed for retrofitting.

Whilst the promises made in the Autumn Statement are promising, more details are needed, particularly around how infrastructure projects will be accelerated, given the rollback of the Accelerated Project List of Lizz Truss’s Growth Plan. References to planning reform and sector-wide efficiency improvements have been made before with little tangible change, so the CBI will be on hand to provide tangible insights, ideas, and examples of how practical change can happen.

Innovation was positioned as one of the three key pillars of growth clearly signalling the importance of research and innovation to the future economy. 

There were significant changes announced to the R&D tax credits system. This included an increase in the Research and Development Expenditure Credit (RDEC) rate for large businesses from 13% to 20%, however, substantial cuts to the rate of the SME tax credit scheme were also announced, which will come into force from April 2023. 

The CBI has successfully argued for:

• Re-commitment of previously announced increases to public R&D spend to £20bn by 2024/25
• Increased support for manufacturing firms to boost their productivity by extending the Made Smarter Adoption programme to the East Midlands
• An increase in the rate for the large business R&D tax credit system
• Re-commitment on digital infrastructure - maintaining gigabit broadband rollout which will be vital for widespread tech adoption and growth
• The continuation of the Enterprise Investment Scheme and Venture Capital Trusts, with the removal of the 2025 sunset clause.

We also welcomed: 

• The re-commitment to bringing forward the Draft Digital Markets and Competition Bill. 
• The announcement that Sir Patrick Vallance will lead work to consider how the UK can better regulate emerging technologies, enabling their rapid and safe introduction
• Increased funding for the catapult network by 35%.

Signalling that innovation and technology is key to businesses having confidence to invest in innovation in the UK. The prioritisation of innovation in the Statement, combined with the recommitment to increasing the R&D budget, sends clear signals to business that the government is committed to the future economy.

The reforms to the R&D tax credit system from April 2023 will have a significant financial impact on innovative businesses – positive for larger businesses but largely negative for SMEs.

Changes to the SME scheme mean profitable SMEs will be able to claim smaller deductions (so they pay more tax), and loss-making SMEs will receive lower cash credits. This affects their cashflow and effectively increases the cost of R&D investment for SMEs in already difficult economic conditions. In contrast, the increase in the RDEC rate should boost large company R&D investment.

The government will consult on the design of a single R&D tax credit scheme ahead of the next Budget and work with industry to understand how government can best support innovative SMEs. The CBI will engage closely with government on this work.

With firms expecting a stream of changes to digital regulation over the next year, it’ll be important for government to set out a clear direction of travel and specifics on pro-innovation regulation to give firms certainty to invest. The CBI will continue to work closely with government on the development of digital regulation, including the Digital Markets and Competition Bill mentioned today.

In an addition to £1.2bn of additional funding over 2023-24 and 2024-25, the Chancellor announced a new Investment Zone will be developed in partnership with the Welsh Government. He also announced £10m for the Advanced Technology Research Centre (ATRC) and additional funding for the semiconductor Catapult.

Until today, businesses in England faced an inflation-based hike in business rates bills over 10.1% at the same time as a revaluation in April 2023. The CBI successfully argued for the freezing of the business multiplier for another year to protect businesses from rising inflation. As non-domestic rates are devolved to the Welsh Government, the CBI will be working with the Welsh Government to ensure the business case is made for a similar freeze in the multiplier for the tens of thousands of Welsh firms struggling with the cost of doing business crisis.