How will the 2022 Autumn Statement impact design?

UK chancellor Jeremy Hunt presented an Autumn Statement that promised “a consolidation of £55 billion” and prioritising “stability, growth and public services”.

Following the numerous “U-turns” since Kwasi Kwarteng’s mini-budget, the new Statement confirmed the Government’s move away from its predecessor’s economic plans.

“I understand the motivation of my predecessor’s mini-budget and he was correct to identify growth as a priority.” Hunt commented. “But unfunded tax cuts are as risky as unfunded spending which is why we reversed the planned measures quickly”.

Coinciding with the latest forecast from the independent Office for Budget Responsibility, the new chancellor used the findings to justify the UK’s economic position in his speech, blaming global factors as “the primary cause of current inflation”.

Hunt then announced a series of “difficult decisions”, including “asking more from those who have more means” including lowering the threshold at which the additional rate of income tax applies from £150,000 to £125,140 and announcing “temporary” windfall taxes on energy businesses’ profits of 35 rather than 25%.

However, think-tanks the Resolution Foundation and the Institute for Fiscal Studies have highlighted how significant spending cuts are being delayed until after next general election.

“Grim reading”

The OBR report shows a depressing outlook for the UK, with a forecasted recession, rise in unemployment and a 7% drop in living standards for the next two years, which is the largest decline in six decades.

“The economic outlook makes for grim reading” says Caroline Norbury, CEO of Creative UK. “The two million people who represent Britain’s Creative Industries will have heard little in today’s Statement to provide reassurance about their future.”

However, the relative “stability” offered by the Statement was well-received by design leaders.

Norbury says, “Given the volatility of recent months, the chancellor’s efforts to re-establish economic stability are welcome.”

A spokesman for the DBA comments: “Design agencies are reliant on industry being confident in investing in their own businesses and this is increased greatly when there is stability and a degree of confidence in what the future may hold.”

Research and Development

Following a series of announced changes, the point most raised by industry leaders was that more needed to be done for Research and Development (R&D).

Norbury comments, “The chancellor rightly spoke about the need for growth – and the UK’s Creative Industries are well-placed to help boost growth and innovation if key barriers are removed”.

The R&D tax relief rate has been reduced from 130 to 86%, and the tax credit relief reduced from 14.5 to 10%.

According to Hunt, “Despite raising revenue, the OBR have confirmed that these measures have no detrimental impact on the level of R&D investment in the economy.”

However, Michelle Denny-West, tax partner at accounting firm Moore Kingston Smith comments that the changes “will be a big disappointment to businesses in the design industry who currently make use of the tax reliefs available for R&D”.

She explains that the cuts were justified by reported “abuses” of the current system of tax reliefs and that the Government is “seeking to deter by reducing the relief available, with a view to eventually having a single scheme for all”. Among the cuts, however, the Research and Development Expenditure Credit (RDEC) rate for larger businesses will increase from 13 to 20%.

The chancellor also promised to work with industry “to understand what further support R&D intensive SMEs may require”, a move which is welcomed by industry leaders who are calling for changes.

According to a spokesman for the DBA, “The DBA will continue to lobby for the definition of what qualifies for R&D relief to be broadened to include a wider array of design investment.”

Minnie Moll, Design Council CEO adds, “Within the reform of R&D tax credits, it is crucial that the definition is expanded to include design, and that SME’s and micro-businesses, which form the vast majority of the UK design economy, are supported.”

Norbury also comments, “Equally, we are keen to boost innovation in our thriving sector by expanding the R&D tax relief to include the arts, humanities and social sciences, rather than by ‘rebalancing’ rates”.

The skills gap and the future of the planet

Norbury highlights Creative Industries workforce and skills shortages and adds that “access to finance across the country urgently needs addressing”.

Moll adds that the Design Council is currently trying to improve investment in the area.

“We hope to work with the newly appointed Adviser on Skills Reform to reverse the 68% decline GCSE design education and widen the technical pipeline into the sector. Skills investment in design is crucial to securing a prosperous and productive economy for the long term”, she says.

Moll also suggests that design investment will be vital for the UK to meet its environmental pledges.

“We welcome the chancellor’s renewed commitment to COP26 pledges and increased investment in energy efficiency through insulating homes. The UK’s world-leading design and architecture industries are ready to address this challenge.”

She adds, “If this investment is implemented effectively, there is huge potential for the sector to enable us to achieve the Government’s targets of a 15% reduction in building and energy consumption by 2030. However, delaying the expansion of this programme to 2025 is a missed opportunity to accelerate solutions to achieve net zero.”

Taxation

Income tax and National Insurance thresholds will remain at current levels, except for the additional rate threshold being reduced from £150,000 to £125,140 from April 2023. However, Denny-West points out that “when taking into account the earlier abolition of the 1.25% rise in National Insurance, many high earners will not be worse off overall when compared with the 2022/23 tax year”.

Denny-West adds that the budget will also impact lower earners as the freezing of thresholds “will result in a real terms pay-cut unless earnings rise with inflation”. She adds that this will “increase pressure on employers in the design industry to increase wages on top of other cost pressures”.

The DBA is also concerned on the pressure for employers in the design industry. According to a spokesman for the DBA “the personal income tax increases will affect design businesses trying to manage their talent pool and develop and maintain their culture.”

“We know that our members are trying to be fair to their staff and support them through difficult times, but an impending recession makes it difficult for businesses to be generous”, the DBA spokesman adds.

Capital gains tax sees a reduction in the annual exempt amount from £12,300 to £6,000 from April 2024, and to £3000 from April 2024. Denny-West describes this as “unsurprising”, with “many expecting more drastic measures”. For designers, she explains, this will only impact those who supplement their income with investments or have investments within their business.

The announced reduction in dividend allowance for £2000 to £1000 in April 2023, and to £500 a year later “will be disappointing for small owner-managed business in the design industry”, says Denny-West.

The VAT registration threshold will be maintained at the current level of £85,000 until 31 March 2026. “This announcement will be disappointing for smaller businesses operating in the design industry” comments Denny-West. She also cautions that these businesses will need to carefully monitor their income “to ensure they don’t sleep-walk into a VAT nightmare, opening themselves up to penalties”.

What else?

Electric Cars – company car tax benefits for electric cars will increase by one per cent for three years from April 2025; Vehicle Excise Duty will be equalised for electric vehicles from April 2025; first capital year allowances for electric charge points will be extended for two years until April 2025

Non-doms’ tax status remains intact

Hunt says Government undecided on OBR’s predicted fuel duty rise

Benefits and pensions to rise with inflation

Social care reforms to protect the vulnerable have been delayed

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