As the UK braces for Labour’s first Autumn Budget since taking office, business owners in the North East are evaluating how proposed changes might reshape the economic landscape.

Chancellor Rachel Reeves addressed the UK’s financial challenges, including a significant budget deficit, while maintaining Labour’s promise not to increase key tax rates like VAT, income tax, or employee National Insurance. However, additional costs for employers, changes to capital gains tax and other shifts could create both challenges for regional businesses.

Increases in employer National Insurance Contributions (NICs) and changes to Capital Gains Tax (CGT) could create substantial financial strain for business-owners. Higher NICs would drive up payroll costs, affecting both cash flow and hiring capacity, especially for small and medium-sized enterprises (SMEs) already dealing with inflationary pressures.

These increased costs could discourage expansion and investment in workforce growth. Furthermore, raising CGT on business asset sales would reduce post-sale earnings for owners looking to exit or reinvest, potentially slowing entrepreneurial growth. The combined impact may discourage business creation and expansion, reducing overall economic dynamism in the business sector.

In this article, we outline the top Budget updates most relevant to the North East business community and share insights on how to plan effectively for the coming year.

Corporation tax and capital allowances

One of the most business-friendly measures in the Budget is the continuation of the “full expensing” policy for capital investments in plant and machinery. The government aims to encourage further investment in manufacturing, technology and infrastructure by allowing businesses to deduct the full cost of such assets from their taxable income. Corporation tax will also remain capped at 25% for the foreseeable future, a decision intended to offer stability for companies planning long-term growth.​

Employer National Insurance Contributions (NICs)

An area likely to bring new challenges is employer National Insurance Contributions. Labour’s pledge not to raise NICs applies only to employee contributions, leaving the door open for increases on the employer side. Such a change could impact the North East’s small-to-medium-sized enterprises (SMEs) the most, especially those with a high employee base or operating on tight margins. For companies already struggling with rising wages and inflationary pressures, any hike in NICs could mean reconsidering hiring or salary increases​.

Fuel duty adjustments

Transport-heavy industries, such as logistics, trades and retail, are at risk of higher operational costs if the government lifts the fuel duty freeze. Fuel duty has been capped since 2011, but budgetary pressures are prompting the government to consider a rise. North East businesses with regional or national supply chains may feel the impact most acutely, as rising fuel costs could affect both pricing and profit margins. For companies in rural areas, where public transportation alternatives are limited, these changes could prove especially burdensome​.

Potential changes to Capital Gains Tax (CGT)

Another anticipated adjustment is to Capital Gains Tax (CGT), which may see rates aligned more closely with income tax. Entrepreneurs considering an exit strategy or business sale will want to keep a close watch on this, as reduced CGT reliefs, like Business Asset Disposal Relief, could increase the tax burden on business sales. Any modifications could significantly impact North East business owners planning for succession or retirement, making early planning and professional advice essential​.

Research and Development (R&D) Tax reliefs

R&D reliefs, a cornerstone for innovation-driven businesses, could face tighter eligibility criteria. While the government hasn’t confirmed specific changes, recent scrutiny over misuse has led to speculation about increased oversight. For the North East’s manufacturing, tech and pharmaceutical sectors, R&D credits have historically supported growth and job creation. The government’s planned “roadmap” may provide more detailed guidance on eligible investments, allowing firms to plan for sustainable innovation while minimising compliance risks​.

How to prepare for 2024 and beyond…

With fiscal challenges ahead, North East business owners should take proactive steps in response to the Budget:

Re-evaluate staffing budgets – employers should assess how potential NIC increases may impact hiring plans and consider wage adjustments to balance staff retention with cost management.

Consider long-erm investments – the continuation of full expensing for capital investments provides an opportunity for companies to make strategic, long-term purchases in machinery or technology that enhance efficiency.

Review succession planning – given the potential for increased CGT rates, business-owners aiming to sell or transfer their businesses may benefit from early planning to optimise exit strategies under current rules.

Stay informed on R&D credits – firms relying on R&D tax relief should monitor the government’s announcements closely, ensuring compliance while maximising benefits from innovation investments.

Final thoughts…

The Autumn Budget 2024 presents a mixed outlook for North East businesses. While certain provisions like full expensing and corporation tax stability offer predictability, potential NIC increases, fuel duty hikes and CGT reforms may create financial hurdles. Business owners will need to navigate these changes with foresight and agility, adapting strategies to leverage opportunities and mitigate risks.

As we await the full details, North East business leaders are encouraged to consult with financial advisors to develop adaptive strategies that align with both immediate needs and long-term goals. This Budget, though challenging, may also serve as a catalyst for smarter growth across the region.