“We are focusing on controlling the controllable”

Optical leaders have welcomed tax relief introduced in the Chancellor of the Exchequer’s Growth Plan, but have expressed concern over the broader effects of uncertainty created by the measures, with one chief executive observing that uncertainty “is the opposite of what consumers and businesses need right at this moment.” 

Businesses, including optometry practices, welcomed the tax cuts that were announced as part of Kwasi Kwarteng’s ‘mini-Budget’ on Friday 23 September. 

However, concerns over the broader effects of the measures have arisen as, in the week following the announcement, the value of the pound has fallen to a record low. 

On 28 September, the Bank of England announced plans to step in to “calm markets,” following the drop in value, which came alongside a rise in the UK’s borrowing costs. Kwarteng has said that he is working closely with the governor of the Bank of England and the Office for Budget Responsibility.

Central to the new measures outlined in the Chancellor’s Growth Plan was a significant change to several taxes for employers, employees and self-employed people. This included the reversal of an increase in national insurance.

The Chancellor also revealed plans to bring forward a cut to the basic rate of income tax by a year, to 19% from April 2023.

Commenting on the change, Angela Davey, partner at Haine & Smith, told OT: “The reversal of the increase in employers’ national insurance is very welcome especially given the increase in wage costs that we are now experiencing.”

“It is also good to know that our employees will have an increase in their take-home pay, which will be further enhanced by the reduction in the coming tax rate to 19% from April 2023,” Davey added.

The reversal of the increase in employers’ national insurance is very welcome

The Federation of Small Businesses (FSB) welcomed the move to reverse the national insurance increases, with chair, Martin McTague, noting that it had “made it more expensive for small business owners to pay employees or themselves, but it also made it more expensive to start-up as self-employed and reduced pay for millions of employees.”

The non-profit, which supports small business members in the UK, also suggested that scrapping the planned increase to corporation tax would “free up funds for small businesses to invest, and mitigate the impact of continuing high inflation levels.”

However, concerns and uncertainty still remain for businesses, including optometry practices.

Davey told OT: “There are two key aspects that have been left out of the mini-budget which have a great impact on us, these are business rates and VAT.”

With the Government having recently announced a cap on energy bills for businesses, Davey suggested: “The positive effects of the cuts in energy bills will be meaningless if business rates are allowed to soar.”

Ryan Leighton, CEO of Leightons and The Hearing Care Partnership, agreed that the change to national insurance would be welcome, telling OT: “As a business employing 400 people, we will of course accept the reversal of the national insurance increase as not another cost increase to deal with.”

But in light of the wider impact of the Government’s economic plan, and concerns raised by economists, Leighton noted: “The big concern is, clearly the Bank of England will have to raise interests considerably and this will have a big impact on the consumer over the next few years.”

This brings, Leighton suggested, “a whole host more uncertainty, which is exactly the opposite of what consumers and businesses need right at this moment.”

In a likely recession with high inflation and rising interest rates, winter isn’t coming – it is well and truly here

In light of the Chancellor’s announcement, Martin Ashcroft, chief financial officer of Hakim Group, called the measures “a double-edged sword.”

“On the one hand, there’s some good news in there for companies in relation to the tax savings, which can be redeployed at a challenging time as investment in their employees and into the business, which is really positive.”

However, Ashcroft noted that downsides have been highlighted in discourse around “the run on the pound, the subsequent ripple effect on interest rates and inflation, as well as the general confidence in the country’s leadership.”

“All businesses await with bated breath, the November fiscal changes that the Chancellor has intimated over the past couple of days,” he shared.

“Between now and then, as a business, we are focusing on controlling the controllable. That’s what it comes down to at the moment,” Ashcroft said. “As a team we are focusing our efforts on controlling the many things we can, watching (and not worrying too much) about the macro-environment, because that is largely out of our control.”

Concluding his thoughts on the measures, Ashcroft shared: “For optical practices, this all boils down to consumer confidence and disposable income. In a likely recession with high inflation and rising interest rates, winter isn’t coming – it is well and truly here.”

Further changes

The change to national insurance was a stand-out headline from the Growth Plan. National insurance had risen by 1.25 percentage points in April 2022, to support the funding of health and social care, but the new Chancellor intends to cancel this from November.

The Government suggested that this change to national insurance will mean 920,000 businesses see a cut in their related bills, including 905,000 micro, small and medium-sized businesses.

The change to national insurance is set to take effect for employees in their November pay, depending on their employer’s payroll software.

A separate Health and Social Care Levy tax, originally planned for April 2023, has also been cancelled.

Further measures outlined in the Chancellor’s plan included cancelling a UK-wide rise in corporation tax that would have increased from 19% to 25% in April 2023, and rolling back the 2017 and 2021 IR35 reforms.

As part of the Growth Plan announcement, the Government revealed that discussions were underway with 38 local and mayoral combined authority areas in England, including Tees Valley, South Yorkshire and the West of England, regarding the establishment of Investment Zones in specific areas.

The Investment Zones would offer targeted and time-limited tax cuts for businesses, such as removing business rates and waiving stamp duty, and providing “liberalised” planning rules to release land for housing and commercial use.

Discussing the implication of these zones, Ashcroft shared with OT: “On the whole, this is an attempt to get people investing in local economies. The idea is you make lots of savings from employing people in certain areas. So in principle, the idea is a really good one, as you end up redeploying resource to where the economic needs are greatest.”

The British Chambers of Commerce also suggested that Investment Zones might deliver on intentions to ‘level up’ areas of the country – “if the scheme is truly UK-wide.”

Director general of the BCC, Shevaun Havilland, cautioned: “Lessons must be learned from the past, otherwise they can simply displace growth and investment from one area to another without creating new economic activity.”

Cancelling the levy: healthcare leaders respond

Responding to the fiscal announcement, Matthew Taylor, chief executive of the NHS Confederation, cautioned that many health leaders are “underwhelmed and worried by the implications” of the measures.

“They will appreciate the chancellor’s confirmation that spending on health and care will not be reduced following the scrapping of the national insurance increase and planned levy,” Taylor said, but added: “In the context of rising inflation levels and the pay award not being fully funded, the NHS simply needs more investment to stay afloat and fully meet the needs of its patients.”

The NHS faces real term cuts of £4 billion, Taylor suggested, “the first drop in funding in years.”

The executive warned that this creates a “perilous position” for the NHS as local leaders “either have to cut back patient care or accept that waiting times will continue to lengthen.”

With a £500 million adult social care discharge fund recently announced as part of the Governments plans for the NHS, the Health Confederation questioned where the funding would come from.

Health leaders are left with unanswered questions on NHS and social care funding that will need to be addressed in the Chancellor’s medium term fiscal plan, Taylor said.