As we head into the final quarter of 2023, it has certainly proven to be an interesting year from a business perspective. We all breathed a sigh of relief as COVID restrictions were lifted and we were seemingly returning to normal. Little did we know that we were returning to a ‘normal’ of not a couple of years ago, but several decades ago with both high-interest rates and high inflation.
Following on from the unprecedented challenges of COVID, businesses quickly had to adjust to this new reality. I reflect on some of the commentary from 2008/9 when interest rates plummeted, coupled with warnings of not building cheap debt into your balance sheet. Those warnings seemed somewhat empty in the weak economic environment that followed, which perpetuated low-interest rates. Now of course we can see the impact of the cost of borrowing rising back towards the levels many of us grew up with.
It’s not just the cost to businesses, but the cost for consumers as well which has an impact. I used to tell some of our newer staff about the interest rate I paid on my first mortgage. They were aghast! Unfortunately, as they come up to the end of their fixed-price deals, it is a reality they are now facing. With rising rents and utilities, this all feeds into the cost of living and a reduction in demand for businesses as disposable income falls.
It’s not all doom and gloom though. As with the 2008/9 recession, businesses in our region prove to be surprisingly resilient. I do reflect on some of the commentary from 2008/9 when it was felt there was a risk that business leaders might lack the experience of dealing with a deep recession. However, given the experiences of recent years dealing with an unfolding and uncertain situation seems to be a pre-requisite to being in business these days.
The press also have a habit of talking the economy down and, anecdotally, when the GDP figures come out, it is never quite as doom and gloom as has been painted.
We’ve also recently had party conference season where, with a general election in sight, the political parties have begun setting out their stalls. There is a long way to go of course before these early soundings make their way into manifestos, but inheritance tax has become something of a political football. Whether to abolish to tax entirely, or to remove some of the exemptions, such as business property relief, or just to leave it as it is. Danny Clifford looks at inheritance tax in the edition of Business E+.
One of the projects HMRC has had in hand for a while, is to tighten up on R&D tax credits. It was widely acknowledged that the system was open to abuse and Ann Minson, from our Corporate Tax team, picks this up which will be pertinent to anybody claiming, or considering claiming, R&D tax relief.
One way or another, it seems no doubt that there is more change ahead!