4 January 2018
The last couple of years have been anything but predictable, both in business and in politics, but here we take a look at the bigger picture and try to predict the events on the national and world stage that could have an effect on your business and your finances.
The political scene
First let’s address the major catastrophe scenarios that are mentioned in some of the sensational newspapers. Relations between North Korea and the USA are fraught, but a nuclear war is still improbable and a Russian invasion of an Eastern European state is also unlikely.
Closer to home, the UK leaving the EU without an acceptable deal is possible, but not this year. Ongoing uncertainty could however continue to discourage foreign inward investment. The UK is at a critical point timing-wise in its negotiations with Europe – so it’s likely the Conservative government will be in power next Christmas despite any other political developments.
Public finances and taxation
Public opinion could continue to exert pressure on our politicians in a number of predictable areas. There will be an intensification of the clamour to increase the funding of public services, especially the NHS, and the Government will have to respond in order to prevent strikes and protests.
The economy will continue to experience a slow rate of growth, probably no more than 1.5%, for a number of years due mainly to poor productivity, for which there is no quick fix. So where is the money going to come from, especially as pledges have been made not to increase the basic rate of Income Tax, National Insurance contributions or VAT? Possible measures available to the Government are further clampdowns on tax avoidance (especially those involving offshore ‘tax havens’) and raising the higher and top rates of Income Tax. Such measures would gain popular support but alienate some of the Conservative Party’s major donors, without raising anything like the required amount of revenue.
What is needed is a new type of tax that can be applied without directly affecting the poorer members of society and can be earmarked specially for the NHS and social care. But isn’t that exactly what National Insurance is supposed to be for? Interestingly, the pledge to freeze National Insurance contributions was made before the 2017 election and isn’t repeated in the Conservative Party manifesto. One thought would be to add a couple of percentage points to employers’ National Insurance. This would just about plug the NHS’s funding gap, would not affect employees’ pay-packets and would claw back from business some of the benefits granted by the reduction in the rate of Corporation Tax. It would be unlikely to cause unemployment (given current labour shortages), and, by making labour more expensive, would encourage businesses to invest in being more productive.
Of course, we might see other measures aimed at improving productivity, but we already have a generous annual investment allowance to encourage capital expenditure, and R&D tax credits have recently been reviewed. Not much more can be done in those areas so further measures to improve infrastructure, transport and housebuilding may be announced. Also expect new training initiatives to help those sectors most affected by the reduction in immigration from the EU: science, technology, retail, hospitality, and construction.
Safeguarding in the workplace
Do not underestimate the ongoing effects of the Weinstein affair and the increase in the number of sexual harassment claims that resulted last year. 2018 may see a surge of such complaints, affecting even small enterprises. This has the potential to cause tensions and disruption in the workplace which will damage productivity and profits. Employers need to ensure that they have a well-documented policy and readily accessible procedures for dealing with any complaints. Most will already have a policy on bullying and this may need to be revised or extended to cover harassment of a sexual nature. Particular care needs to be taken over defining such offences to ensure that inoffensive comments or even compliments are not deliberately misinterpreted. Common sense should be allowed to prevail!
In 2017 we read much about rapidly emerging technologies such as AI, machine learning, blockchains and the internet of things. All of these will gradually become more important in commerce and industry in 2018. For SMEs the most important development this year may well be fintech – making it easier for your customers to do business with you electronically.
The use of debit and credit cards will start to decline, to be replaced by the mobile phone as a point of sales system. Many large companies and organisations already offer this facility and nowadays customers expect the same range of services from a small firm as they do a larger one. This arrangement also provides companies with a unique insight into their customers through sophisticated analytics tools previously available only to larger businesses.
If you are in business, you need ensure that you keep up to date with fintech developments in order to remain competitive. Embracing the technology will help you stay at the forefront of your market.
Change means opportunity, so stay positive! We look forward to working with you in 2018 to help you to achieve your aspirations.
Happy New Year!
As one of the leading firms of accountants in the North East, with offices in Newcastle, Sunderland and Jarrow, we have the expertise to advise you on a wide range of tax related issues. If you would like to speak to one of our local experts, please contact us.