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17 February 2021
Chancellor Rishi Sunak will deliver his crucial budget in just 21 days.
After nearly a year of restrictions, lockdowns and other economy-stifling measures, what he has to say will be hugely important.
There will be crucial decisions for households currently struggling with debt and also creditors seeking to rebuild balance sheets following successive lockdowns that have shaken the UK economy.
To find out more we spoke to Charlotte Smith, our Financial Controller to hear her perspective on the past year and what to look out for in the Chancellor's upcoming speech.
It's certainly been an interesting time. Many finance departments have seen reductions in staffing numbers and that’s been a feature across businesses in general.
At the onset of the crisis, many businesses opted to make use of the furlough scheme which has spread personnel in quite a thin way whilst at the same time organisations in every sector have had to respond and adapt to the coronavirus environment.
That’s been one challenge but also as that support expires finance departments will be looking to balance the books and make a number of difficult decisions based on quite an uncertain forecast for the future.
All of which means that finance professionals have had to be pretty agile over the past 12 months to help businesses adapt. One key aspect of that is understanding what cost savings can be made during lockdown periods to preserve resources.
Typically, we're the ones that are running the numbers, working out the impact of Covid-19 and also the impact of lockdown restrictions. This means many accounts teams are currently very busy reworking budgets and reforecasting.
It is a continual process of trying to understand where the opportunities are, where the pressures exist but also how we can improve financial performance and attempt to mitigate any of the difficult situations ahead.
For many, this has undoubtedly proved difficult, but I also believe those who have stayed agile throughout the year have weathered the storm well, despite the obvious challenges for all involved.
It’s fair to say there are a great many rumours flying around about all the different policy changes under consideration by the Chancellor Rishi Sunak although nothing substantial as yet.
I believe it will be a very important budget statement for a number of reasons but specifically in terms of tax rises and public spending.
On the one hand, we know that conservative governments are very reluctant to raise tax rates and their most recent manifesto promised no rise in VAT, income tax or national insurance during this parliament.
However, we also know that the Office for Budget Responsibility has forecast UK unemployment to rise towards 2.6 million this year, peaking at a 7.7% headline rate in the first quarter of the new financial year.
That’s certainly going to increase the deficit. As a result, the treasury will be looking to offset pressure on public finances that are already under strain as a result of the Covid-19 support package to prevent job losses and long-term economic damage.
We should expect the chancellor will attempt to raise revenue from other sources which may include fuel duties, corporation tax, property tax or capital gains tax. There is also a suggestion that council tax may be reformed to boost local government budgets.
In normal times, we would also be looking out for public spending cuts but there seems to be a broad consensus this is not the right thing to do as households and businesses attempt to recover from the impact of the pandemic.
Instead, it’s more likely that the chancellor will attempt to taper existing government support, including the furlough scheme and SEISS. He will also need to consider whether to make the existing increases to universal credit permanent or taper these also.
At the moment, these schemes expire at the end of April but that may well be too soon for hard hit sectors such as retail and hospitality. Potentially, we should look out for a sector specific extension here to prevent large scale job losses and redundancies.
The furlough scheme is something that will almost certainly feature at the heart of the budget for that reason. It does need to be looked at again and many households and businesses will be counting on continued support to prevent unemployment.
Similarly, I think we may see tailored support for those disproportionately affected by Covid-19 including young people, those on low incomes and those in poor health, including those with pre-existing conditions or who are suffering with long Covid.
It has been difficult over the last 12 months and the economic impact has not been shared equally. Whilst some people have seen more disposable income as a result of a lockdown there are many who have been severely impacted in a negative way and have had a significant reduction to their revenue and income.
The chancellor may opt to increase income tax through freezing income tax thresholds however this will need to be considered carefully so as not to reduce household spending which will be critical to boost the economy.
As the economy begins to reopen, I feel that all businesses will need to consider the way they run to reflect the changing times we find ourselves in.
For example, surveys suggest that many companies will now offer flexible and remote working arrangements as standard. That’s a positive step in terms of cost but also something that employees are calling for in the modern workplace.
It’s also important to reflect on the societal and technological changes we have seen in the past year. In some sectors, the pandemic has brought about a sudden acceleration of a decade long trend, so many businesses will be looking at digital transformation.
Most importantly, the past 12 months has demonstrated the importance of staying agile and working in a compassionate way. I believe that’s an important ethos to carry forward as we look to recover from such a challenging time.
As things get back to normal, it’s important to look for different ways of making a business successful. It might mean trying new things. It might mean moving into a different sector. It might mean trying to do things an innovative new way.
That’s the optimistic outlook we need to take forward in 2021. With energy and application, I feel confident that the economy will reopen and recover allowing us to build back better than before.
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