Kevin Duffy, regional managing partner for RSM, gives his views on the impact the forthcoming Autumn Budget could have in the north of England:
As businesses and individuals watch inflation reach double digits and interest rates climb to levels that many have not seen in their working lives before, what do these, along with the Autumn Statement, potentially mean for the north of England?
Recent political turmoil upset the markets at home and internationally, and the result was that businesses suffered from a real degree of uncertainty about what was ahead.
On being appointed chancellor, Jeremy Hunt quickly set about reversing many of the more controversial tax changes and this, along with Rishi Sunak being appointed Prime Minister, has seemingly set a course for steadier, if potentially more austere, times. After all the recent announcements and u-turns it seems foolish to make too many policy predictions, but it’s worth thinking about some of the macroeconomic considerations.
The upheaval in the Conservative party, and the accompanying polls showing Labour to be well ahead, suggest the “red wall” vote may be under threat. Whilst there is no guarantee of this, it does potentially alter the economic and political environment, and in turn the likely approach to tax and investment.
All of this leads to a number of questions in advance of 17 November:
What does it mean for the north and the levelling up agenda?
With a much publicised £50bn gap in the public finances the chancellor has a tricky task ahead in attempting to close that gap, while at the same time delivering policies to boost growth.
The North is waiting with bated breath to see if the new leadership is still serious about levelling up, or, whether the headwinds we now face make it a pipe dream.
Policies aimed at supporting growth in the north of England and putting levelling up firmly back on the political agenda will therefore be warmly welcomed by business leaders across the region.
What is a sustainable level of inflation and base interest?
Many economists believe that interest levels have been too low for too long, and it’s important to remember that businesses across the north have operated successfully in significantly more challenging environments than this before.
Whilst the shock of these economic factors continues to be felt, we hope that there is better news around the corner with interest rates unlikely to go above 5% and energy fuelled inflation expected to recede in the latter part of 2023.
Businesses urgently need some level of certainty and stability, so business owners can navigate through the current economic environment and invest with confidence.
How can businesses protect themselves and their stakeholders?
What is crucial for businesses is that they work in partnership with providers of finance, advisors, staff and other stakeholders to manage the risks that come with higher inflation and interest rates.
Focussing on customers and employees also remains of paramount importance. Customer focus, and delivering value, ensures that business can more effectively deal with matters such as price rises. The war for talent shows no signs of abating, and workforce retention therefore remains crucial to navigating the current challenges.
So far, we are not seeing significant increases in the number of businesses that are going to the wall as a result of the economic conditions, but with the Bank of England predicting a recession lasting two years, and the same timescale before interest rates and inflation level off, there is a risk that more businesses will fail.
What can the government do to help?
The government must make decisions that assist business as far as possible. Underpinning a thriving economy is wealth creation, which at its most basic is a country of successful businesses with well remunerated employees. It is not an option to operate in a vacuum, and business leaders across all sectors should be consulted to help highlight their concerns and take action to address these.
At the same time, government should use differential policies to drive levelling up in the north, and we have already welcomed the newly created Freeports. We would like to see government expand this concept to many more locations across our region. This would stimulate growth and make the north the most attractive destination for international inbound investment.