What the Autumn Budget means for international trade and global mobility

Spending and taxation plans laid out by the Labour government in its first budget since coming to power in the summer, have failed to impress leaders of the UK’s business community.

David Sapsted

31 October 2024

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Chancellor of the Exchequer Rachel Reeves maintained in the Commons on Wednesday afternoon that the budget and its £40 billion tax rise would maximise economic growth.On Thursday, the International Monetary Fund (IMF) took the unusual step of publicly praising the budget, describing the tax rises as "sustainable" and welcoming measures to increase investment and spending on public services.Businesses, however, voiced reservations about some of the measures, most notably the 1.2 per cent increase that employers will have to pay in National Insurance contributions on workers’ earnings above £5,000, rather than £9,100 currently. The only relief for smaller firms is that the allowance, which allows them to reduce their National Insurance liability, will rise from April to £10,500 from the current £5,000.On Capital Gains Tax for individuals, the rate will rise from 20 to 24 per cent for higher taxpayers, while for lower rate taxpayers, it will increase from 10 to 18 per cent. But Corporation Tax paid by businesses on profits over £250,000 will remain at 25 per cent.Additionally, the non-dom tax regime, which allows foreign residents in the UK to avoid paying tax on overseas earnings, will be abolished in the next financial year to be replaced by a new residency tax.On spending, the government pledged £22.6 billion more for the National Health Service; £6.7 billion more for education; a £5 billion investment in house building; and £6.1 billion for research in the engineering, biotechnology and medical science sectors.Marco Forgione, director-general of the Chartered Institute of Export & International Trade, said that the budget represented a “mixed bag” for international traders.“We welcome policy announcements on long-term measures for sectoral growth, including the development of UK manufacturing strengths, as well as specific regional investment and infrastructure development," he said, singling out the designation of five new customs sites in existing freeports, which will "help attract more inward investment and support business growth".He added: “Many of the policies announced in the budget are closely intertwined with the creation of the government’s modern Industrial Strategy and we are pleased to be actively working with our members and our community of trade experts to ensure that the government is receiving high-quality, tailored and practical inputs to this strategy.“By doing this, we aim to advocate for policies which provide the best environment for UK exporters.”However, Mr Forgione said that SME members had expressed “real concern” in relation to the rise in employer National Insurance contributions and “over wage rise affordability”.

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Concerns have also been raised over Ms Reeves' confirmation that the current VAT exemption for private school fees will be abolished. Virginie Faucon, global head of marketing at AXA Global Healthcare, said the move "will likely have a huge impact on expat communities, particularly those with children in international schools".She continued: "Many expat families rely on international schools to ensure a familiar curriculum and language environment for their children, and the option of transferring to a state-funded school is not always realistic. Without VAT exemption, many international schools will have no other choice but to pass at least some of the increased costs on to parents."These cost increases may not be covered as part of an expat worker’s relocation package, meaning they’ll either have to negotiate for a higher allowance from their employer or cover the costs themselves."On the rise in employers' National Insurance costs, Stephen Phipson, chief executive of Make UK, the manufacturers' trade body, said it would be challenging for many businesses, especially SMEs.“However," he said, "looking at the bigger picture and, the medium to long-term, we welcome the government's clear path to growth for manufacturing with a number of positive measures."In particular, the commitment to an Industrial Strategy, the Corporate Tax Road Map and, continued support for vital programmes such as Made Smarter, are key elements of a growth plan which will enable UK manufacturing to make significant progress over the coming years.”Meanwhile, the Association of Professional Staffing Companies (APSCo) raised concerns that the National Insurance rise could have negative consequences on recruitment and, subsequently, economic growth.Tania Bowers, global public policy director at APSCo, said she feared that for the UK's "economically critical" SMEs employing between 10-250 people, the National Insurance increase "will only reduce the investment they can channel into new hiring".She added: “The financial support pledged to get more people back into work will alleviate some of this in the longer-term, but it takes time to build the skills that are needed. More immediate steps to boost access to talent – through stronger international trade deals and more effective access to contractors – is also required.”Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), accepted the chancellor had "difficult choices to make to deliver stability for the economy and public finances" and that a more balanced approach to fiscal rules, which prioritises capital investment, should help unlock private sector investment in that nation's infrastructure and net zero transition over the long-term.But she added: "This is a tough budget for business. While the Corporation Tax Roadmap will help create much needed stability, the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.“Only the private sector can provide the scale of investment required to deliver the government’s growth agenda. To achieve this shared mission of growing our economy sustainably, it’s vital that the government doubles down on its partnership with business to unlock the investment that is needed to drive opportunity around the UK.”Similar concerns were voiced by Roger Barker, policy director at the Institute of Directors, who said that "at first blush, there is precious little in the government’s first budget which offers anything other than short-term pain for the business community".He accused the government of choosing to impose a significant new tax burden on business as a means of boosting its public sector spending priorities."The risk is that this will exert a negative impact on business confidence, with worrying implications for the economy’s future growth trajectory," he said.“On the positive side, the government has made changes to its fiscal rules, in order to accommodate borrowing for the purposes of investment, and published a corporate tax roadmap, both of which we called for in our budget submission."The protection of public spending on R&D and the announcement of various transport infrastructure projects are also welcome. The role of the National Wealth Fund in directing investment towards the industries of the future will hopefully make a positive contribution to the economy’s long-term growth prospects."Tina McKenzie, policy chair at the Federation of Small Businesses, believed the true test of the budget would be whether small businesses could grow and end the UK's economic stagnation.“Larger small, and medium-sized businesses will struggle with the rises on employer National Insurance on top of the large costs from the Government’s employment law plans," she said. "We’ve been very clear in our warning of the difficulty SMEs will be confronted with in meeting all of these changes at once – and the potential impact on jobs, wages and prices."

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