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Spending Review 2021 – with funding for public services rising at their fastest rate since 2007, what can we expect?

by | Oct 22, 2021 | Business strategy, Covid

Spending Review 2021 – with funding for public services rising at their fastest rate since 2007, what can we expect?

The Spending Review drama

Late into the night, hunched over their desks and surviving on pizza, Treasury officials are drawing up the Chancellor’s Spending Review for 27 October. Only when the review goes to the printers will they breathe a collective sigh of relief. For civil servants, this is when their work ends but for the economy, it’s when the reality of the Chancellor’s new measures bites.

The background to this epic eating of pizzas on Whitehall is that public sector spending in the last tax year hit a peacetime high of 52% of GDP. For context, when the UK took a begging bowl to the International Monetary Fund in 1976, spending reached 46%.

No easy options

Before each budget event, trade groups and associations swarm around Whitehall with their demands. MPs’ email boxes are flooded with requests for the Chancellor to adopt.

Whatever the demands, the Institute for Fiscal Studies is surely on the money when it commented that, “this Spending Review … promises to be a tricky one. There are no easy options.”

Despite this, there are a range of choices the Chancellor, Rishi Sunak, can make from his fiscal menu as he eats his pizza with his budget officials.

It is possible that he could reform the Capital Gains Tax (CGT). Last year, the Office of Tax Simplification suggested the Government could bring CGT rates into line with income tax levels. There’s also the much-mooted increase in the minimum wage – Sunak is expected to confirm that this will rise by an inflation-busting 5.7% to £9.42 an hour.

How our clients’ sectors could be hit

Other measures will have a specific sector impact. The temporary reduction in VAT to 5% for hospitality ended on 1 October when it increased to 12.5%. It is due to rise to its pre-pandemic level of 20% in April next year. Whether it will do so will be confirmed in the review and the hospitality industry will be watching with a keen eye. Trade bodies are already warning that a return to 20% “risks derailing the recovering … when businesses are still in survival mode.”

And then there is retail. Business rates are often mentioned as burdensome. The CBI and 40 other trade associations have called for reform of business rates which they argue, “could unleash a wave of business investment across key Government priorities, including net-zero and levelling up.” The Telegraph reports, however, that the Chancellor has ruled out “wholesale reform” so the sector could be disappointed yet again with this perennial request.

Back in June 2017, flammable cladding caused the horror of the Grenfell disaster and the resulting death of 72 people. Four years later, owners of flats are facing high bills to make their properties safe. The Chancellor could launch a residential property developer tax to pay for the removal of this cladding from high-rise buildings. The levy could be targeted at developers who hoard land and have profits of over £25 million.

We can help you navigate this uncertainty

The Spending Review could increase the uncertainty that your business faces after an already turbulent two years. At Foxley Kingham, we have a range of services that can support you now to prepare you even better for the crosswinds that could come.

We can work with you to develop a robust business plan. In terms of finance, we can help you raise the capital and source appropriate commercial finance that your business needs in this time of uncertainty.

Should your business need it, we can advise on how best to restructure a company for a sounder financial future. And we can also work with you to help prevent insolvency too.

We can also assess the debt collection process, alter your cash flow management, and advise on efficient management information systems – Foxley Kingham is steeped in experience in these fields. As we emerge from the pandemic into the new normal, we can be your trusted business partner to help guide you through any further storms