Rising tax burden threatens South East growth

As businesses continue to focus on recovery from the pandemic and speculation on the contents of the forthcoming Autumn Budget continues, Grant Thornton UK LLP’s latest Business Outlook Tracker finds that one in three (31%) mid-market businesses believe the increased tax burden is a top threat to the growth of their business.

The survey of 605 mid-market businesses in October 2021 showed that the increased tax burden was considered as big a threat to the market as digital security and cyber risk.

Businesses have already been hit this year with the upcoming rise in corporation tax to 25%, announced in the March Budget, and the recent announcement of a rise in National Insurance from April 2022 to help fund the health and social care sectors.

With changing tax policy placing ever greater strain on business finances, the survey found that the policies the mid-market would most like to see introduced by government to support business growth are led by measures to improve infrastructure (32%) and incentives for employers to invest in skills attraction and development (31%).

Backing for low carbon business strategies (30%), measures to level up the UK economy with more devolved powers (30%) and simplification of UK business tax systems (30%) all scored highly.

John O’Mahony, the practice leader for Grant Thornton’s Gatwick team, which covers Surrey, Sussex and Kent, commented: “There is never a good time to raise taxes but businesses around the South East will fear that’s inevitable. I’m sure what the community wants to see is a careful balancing act from the Chancellor. UK Plc is currently batting a perfect storm of issues from supply chain disruption, rising tax burden, lack of talent, increasing energy prices and rising uncertainty as we move towards winter.

“To gain the confidence of UK businesses, the government will need to show that they are able to deliver a clear path to, not just recovery, but also growth. As our research shows, businesses have long favoured a simplified UK tax system but, as the tax burden grows, we are yet to see any progress in this area.”

With COP26 on the horizon and the publication of the government’s Net Zero Strategy this week, it’s encouraging to see that policies around low carbon business strategies are a priority for the mid-market. We know from previous research that only 51% of mid-sized businesses have a net zero carbon strategy in place. To shift the dial in this area and to engage the market effectively in taking action, policy setters need to share clearer guidance that helps businesses to integrate net zero strategies into their operations, ensures the mid-market has access to funds and projects, and consolidates relevant reporting frameworks and standards.