Chancellor’s statement provides mixed bag for Scottish businesses

The reaction to this year’s Autumn Statement from Scottish business leaders has been mixed, with some hailing key tax cuts and freezes, while others criticise missed opportunities for sector intervention.

Chancellor Jeremy Hunt said he wanted to build a more resilient economy, aiming to unlock productivity by boosting business investment by £20bn a year, getting more people into work and cutting tax for 29 million workers across the UK.

With higher revenues resulting from stronger growth than previously projected and the pledge to halve inflation having been met, Hunt announced that a 2% cut to Employee National Insurance – from 12% to 10% – will come into effect from January.

Taxes for the self-employed in Scotland will also be reformed. From April 2024, Class 4 National Insurance Contributions (NICs) for the self-employed will be reduced from 9% to 8% and no self-employed person will have to pay Class 2 NICs.

Taken together, this amounts to a £340 average annual tax cut for 2.4 million workers in Scotland.

As signalled at Spring Budget, the Chancellor also announced permanent Full Expensing: Invest for Less for those investing in IT equipment, plant and machinery.

This scheme is an effective permanent tax cut of £11bn a year, according the The Treasury, potentially boosting business investment by £14bn across the forecast period.

Hunt also confirmed that the National Living Wage will increase by nearly 10% to £11.44 an hour from April 2024, alongside a new £2.5 billion Back to Work Plan for those with long-term health conditions, disabilities and difficulties finding employment – which includes new sanctions for those who can work but choose not to.

The Chancellor announced that the UK Government will honour its commitment to the triple lock in full, with the state pension to increase by 8.5% in April – in what is the second biggest ever cash increase.

Universal Credit and other reserved working age benefits will rise by 6.7% in April, in line with September’s inflation figure, as is convention.

Winter Fuel Payments will be devolved to the Scottish Parliament ahead of next winter. The Scottish Government will receive increased UK Government funding broadly equivalent to the amount the UK Government could expect to spend on Winter Fuel Payments in the absence of devolution, in line with the recently-renewed Fiscal Framework.

Many of the outlined decisions on tax and spending apply in Scotland. As a result of decisions that do not apply UK-wide, the Scottish Government will receive £545m over the next two years.

Accompanying forecasts by the Office for Budget Responsibility confirm that borrowing and debt – as a share of the economy – are lower than in the spring this year and next year, with borrowing also lower on average across the forecast by comparison.

It also confirmed that inflation is expected to return to target in line with the Prime Minister’s economic priorities.

Drilling down into the details of the statement, there were relevant announcements about:

Tax

• The main rate of Employee National Insurance will be cut by two percentage points from 12% to 10% from January 2024.
• The combined rate of income tax and National Insurance for employees paying the basic rate of tax will therefore fall from 32% to 30%.
• The rate of Class 4 NICs on all earnings between £12,570 and £50,270 will be cut by 1p, from 9% to 8% from April 2024.
• The weekly Class 2 NICs – the flat rate compulsory charge which is currently £3.45 paid by self-employed people earning more than £12,570 – will effectively be abolished, with no-one required to pay from April 2024. Access to contributory benefits will be maintained and those currently paying voluntarily will still be able to do so at the same rate.
• The cuts to Class 4 and Class 2 together amount to a tax cut of £350 a year for the average self-employed person on £28,200, with around 2 million individuals to benefit.

Business

• Permanent Full Expensing means a company can now permanently claim 100% capital allowances on qualifying main rate plant and machinery investments.
• Pension reforms, including through establishing a new Growth Fund within the British Business Bank, will help unlock an extra £75bn of financing for high-growth companies by 2030, while providing an extra £1,000 a year in retirement for the average earner saving from 18.
• SMEs will be supported with tougher regulation on late payers to improve prompt payments and continued funding for Help to Grow. The UK government will also work with the Scottish Government to explore the expansion of the Made Smarter Adoption programme – which helps manufacturing SMEs to reduce emissions and drive productivity – in Scotland from 2026/27.
• The existing R&D Expenditure Credit and Small and Medium Enterprise Scheme will be merged from April 2024, simplifying the system and boosting innovation in the UK.
• The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%, and the threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%, benefiting a further 5,000 SMEs.
• The Climate Change Agreement Scheme will be extended, giving energy intensive businesses like steel, ceramics and breweries around £300m of tax relief every year until 2033 to encourage investment in energy efficiency and support the net zero transition.

Work and welfare reform

• From 1 April 2024, the National Living Wage will increase by 9.8% to £11.44 an hour for eligible workers. For the first time this will include 21 and 22 year-olds. This represents an increase of over £1,800 to the annual earnings of a full-time worker and is expected to benefit 180,000 low paid workers in Scotland.
• The government will also substantially increase the National Minimum Wage rates for young people and apprentices: for people aged 18 to 20 by 14.8% to £8.60 an hour, for 16 to 17 year-olds and apprentices by 21.2% to £6.40 an hour.
• The government is reforming the Work Capability Assessment to ensure that people who can work are supported to do so via the welfare system.
• As part of the Back to Work Plan, Additional Jobcentre Support currently live in 90 Jobcentres in England and Scotland will be expanded. This will test the impact of intensive support seven weeks into a claimant’s work search journey. Strengthened sanctions will also apply in Scotland.
• The government is exploring reforms of the fit note process to provide individuals whose health affects their ability to work with easy and rapid access to specialised work and health support.
• A new voluntary Occupational Health standard providing guidance on workplace health and disability will be developed, alongside creating a new digital marketplace to support smaller Scottish businesses procure Occupational Health services.

Infrastructure and levelling up

• £4.5bn of funding for British manufacturers in the high-growth industries of the future, including £960m earmarked for the Green Industries Growth Accelerator to support clean energy.
• The government has published its full response to the Winser review and Connections Action Plan, which aims to cut grid access times for larger projects by half, halve the time to build major grid upgrades and offer up to £10,000 off electricity bills over 10 years for those living closest to new transmission infrastructure.
• In partnership with the Scottish Government, Westminster is announcing £80m of investment for the expansion of the Levelling Up Partnerships programme to Scotland, for Na h-Eileanan an lar, Argyll and Bute, Dundee and the Scottish Borders.
• The government is also supporting the reallocation of £20m from within the Inverness & Highland City Region Deal to fund essential landside infrastructure improvements for the Corran Ferry.
• £10m of funding, alongside £10m from Scottish Enterprise, will establish a Centre of Excellence in Oligonucleotide Manufacturing Innovation – a novel class of therapeutic molecule with significant potential to provide treatment of a wide variety of diseases. The new facility will open in Renfrewshire in 2025.
• The UK Government will work alongside the Scottish Government with the intention of replicating the extension of the Investment Zones and Freeport programmes in Scotland and delivering a share of the funding from a flexible £150m Investment Opportunity Fund, to support the securing of specific business investment opportunities.
• Life sciences will also be supported as one of the Chancellor’s key-growth sectors, with £20m to speed up the development of new dementia treatments coming as part of the government’s full response to the O’Shaughnessy Review of commercial clinical trials in the UK.
• The government has also accepted in principle the headline recommendations of Lord Harrington’s review into increasing foreign direct investment. This includes additional resource for the Office for Investment, allowing it to deepen its world-class concierge offer to strategically important investors.
• The government is providing £1.9m for C-SQUARE in Dundee to open up access to infrastructure that will reduce time-to-market and costs of radio frequency and optical space components.
• The government will ensure greater connectivity for Scotland through improvements to the A75 between Gretna and Stranraer.

Scottish Secretary Alister Jack said: “The National Insurance cut and increase in the National Living Wage will mean a pay boost for millions of workers right across Scotland.

“Vital new support for Scottish businesses will ensure we get growth back into our economy.

“The Chancellor confirmed more than £200m of new, direct UK Government investment in exciting projects across Scotland, which will create jobs, boost growth and transform communities.

“Plus, there will be an additional £545m in Barnett Consequentials for the Scottish Government, on top of their record block grant.”

SNP economy spokesperson Drew Hendry responded: “The UK economy is trapped in a vicious cycle of poor growth, stagnant wages and rising poverty as a result of Brexit and Tory cuts – but neither Rishi Sunak nor Keir Starmer will change course from the damaging Westminster policies that got the UK into this mess.“

Scottish Labour leader Anas Sarwar said: “After 13 years of chaos, decline and broken promises, no-one believes a word this disastrous Tory government says.

“Predicted economic growth has been revised down year after year and our economy is flatlining.”

Vishal Chopra, head of tax for KPMG UK in Scotland, said that the statement serves as a warmup for a more attention-grabbing spring budget, which the UK Government will hope aligns with a steadily recovering economy and an impending General Election.

“Businesses will welcome Hunt’s 110 new growth measures, including making full expensing for capex permanent and others designed to remove planning red tape, support entrepreneurs, unlock foreign direct investment, and cut business taxes.

“The full impact on changes to the UK’s R&D tax regimes – which are to be merged into one, with lower thresholds for businesses to access – remain to be seen.

“Eyes now shift to Holyrood and the impending Scottish Budget on 19 December – questions will be asked about potential cuts to both personal and business taxes, and whether Scotland will introduce any similar cuts and growth measures in devolved areas.”

Liz Cameron, chief executive at the Scottish Chambers of Commerce, said: “While the Autumn Statement brings some welcome measures to incentivise investment and bring people back into work, it is under the shadow of the OBR significantly cutting its long-term economic growth forecasts for the UK.

“Businesses have been languishing with multiple crises and the lack of economic direction and incentives to date has held investment back – the Chancellor today has nudged the dial in the right direction, but business needs more.”

Federation of Small Businesses’ Scotland policy chair Andrew McRae said: “It was good to hear the Chancellor’s strong recognition of the contribution small businesses and the self-employed make to our economy and communities.

“We’re also pleased to see some breathing space on National Insurance Contributions for the self-employed.

“There’s also some relief for our whisky and wider drinks and hospitality industries with the freezing of alcohol duty.”

The Scotch Whisky Association (SWA) welcomed the alcohol duty freeze, stating that the decision to cancel a further hike in duty following the 10.1% increase seen in August provides “much-needed stability” for distillers.

SWA chief executive Mark Kent commented: “The industry is raising a dram to the Chancellor’s decision to support Scotch Whisky producers by returning to the duty freezes that have supported the industry, incentivised investment, and boosted Treasury revenue.“

The retail industry was less pleased though, with Scottish Retail Consortium director David Lonsdale stating that the Chancellor “flubbed the chance“ to freeze the business rate.

“This short-sighted decision means the medium-sized and larger retailers across the UK who underpin the vitality of our town and city centres and employ the vast majority of retail workers are now staring down the barrel of a hefty £540m hike in their business rates bills from next Spring.

“A hike of this magnitude will put upward pressure on shop prices and undermine efforts to rejuvenate high streets and retail destinations.

“Hopefully, the Scottish Government’s Finance Secretary will take a more enlightened approach and go further and freeze the business rate or at least blunt any uplift in next month’s Scottish Budget.”

Marc Crothall, chief executive of the Scottish Tourism Alliance, also sought action in the Scottish Budget.

“The key announcement for our industry today was that the Chancellor will freeze the small business multiplier and extend the 75% discount for retail, hospitality and leisure for another year in England and Wales.

“Scotland’s business community now require the Scottish Government to urgently signal that it will mirror this support in December’s Scottish Budget announcement; this will be key to supporting the tourism, leisure, hospitality and retail sectors over the next financial year.“

Stephen Montgomery, director of the Scottish Hospitality Group, also said that while the support given English and Welsh pubs, hotels and restaurants gives them a fighting chance at survival this winter, “the Scottish Government must now match this support for Scotland’s hospitality businesses“.

He added: “The Chancellor’s decision to extend 75% business rates relief for hospitality businesses in England must be at least matched by the Scottish Government at the Scottish Budget.“

Claire McCracken, partner at Glasgow-based law firm Weightmans, said the statement was a mixed bag for businesses.