Amid expectations of potential tax increases in the forthcoming Budget, businesses are hesitating to hire and invest, according to the Confederation of British Industry (CBI). Ben Jones, the CBI’s lead economist, highlighted that many companies are delaying decisions, waiting for clearer signals from the government on economic policy. The Budget, scheduled for 30 October, will lay out key tax and spending plans, which are crucial for businesses seeking stability.
In contrast to the cautious business environment, the UK economy experienced a modest 0.2% growth in August, with construction, accounting, manufacturing, and retail sectors driving this expansion. However, the Office for National Statistics (ONS) warned of slowing growth in recent months, despite the brief uptick.
The government is under pressure to outline a robust economic strategy as it prepares to host an International Investment Summit, aimed at attracting global investors. Businesses are hopeful for a credible plan that supports growth and investment ahead of the Budget.
What is the chancellor doing?
With the Chancellor’s focus on growing the economy to address long-standing issues such as NHS funding and economic stability, tax increases seem inevitable. Speculation revolves around possible hikes in capital gains tax and reduced pension tax relief, as well as potential changes to National Insurance. Adrian Hanrahan, managing director of Robinson Brothers, expressed concerns about the potential impact of these changes, particularly on employers.
In the energy sector, Scottish Power’s parent company, Iberdrola, has pledged to double its UK investment to £24bn over the next four years, focusing on expanding the electricity grid to connect more homes and businesses. The company urges the government to expedite planning processes to enable faster completion of projects. While some have concerns about the infrastructure required to support this energy transition, Scottish Power argues that moving to wind power will help stabilise energy bills in the long run.
This mix of cautious optimism and concern reflects the broader economic climate as businesses and citizens alike brace for the upcoming Budget.
How should businesses respond?
In times of economic uncertainty, leasing equipment can be a smart move for businesses for several reasons:
Preserves Cash Flow: Leasing allows businesses to avoid large upfront costs that come with purchasing equipment. This frees up cash for other critical expenses or unexpected challenges, helping maintain liquidity during uncertain times.
Flexibility: Leasing contracts often come with flexible terms, allowing businesses to adjust to changing circumstances. Typically a photocopier rental contract is shorter than copier lease, this is largely true for most pieces of business equipment. If economic conditions improve or worsen, companies can adapt more easily. Returning or not-renewing, or upgrading equipment as needed without being locked into long-term commitments.
Access to the Latest Technology: With leasing, businesses can access newer, more advanced equipment without the burden of purchasing. This ensures they remain competitive and efficient, even when financial resources are constrained.
Predictable Expenses: Leasing creates fixed monthly payments, making it easier to forecast and manage budgets. This predictability is crucial in uncertain economic climates when income might fluctuate.
Tax Benefits: Leasing payments are often tax-deductible as operational expenses, potentially offering financial advantages compared to outright purchases, depending on the tax laws in place.
Risk Mitigation: During periods of instability, buying equipment can pose a financial risk, especially if it becomes obsolete or under utilised. Leasing shifts some of this risk to the lessor, reducing the potential for financial loss.
Improved Credit Access: Since leasing doesn’t require a large outlay of capital, it preserves credit lines for other essential areas of the business, such as investing in growth opportunities or covering unforeseen expenses.
Leasing, therefore, allows businesses to stay flexible, conserve capital, and manage risk, making it a viable strategy in times of economic uncertainty.
What else can be done?
During difficult economic times, businesses can implement several measures to remain resilient. Cost-cutting is essential, including reducing non-essential expenses and renegotiating contracts with suppliers. Diversifying income streams, such as introducing new products or services, can also provide stability. Improving cash flow management by offering early payment discounts to clients or extending payment terms to suppliers helps maintain liquidity. Focusing on core competencies and streamlining operations ensures efficient use of resources. Finally, maintaining strong customer relationships and investing in customer retention can help sustain revenue, while exploring digital transformation may unlock cost-effective ways to operate more efficiently.
Thinking ahead…
In times of economic uncertainty, businesses must take strategic actions to stay resilient and flexible. Leasing equipment is a smart option, offering cash flow preservation, flexibility, access to the latest technology, predictable expenses, and tax benefits. Beyond leasing, businesses can cut non-essential costs, diversify income streams, improve cash flow management, and focus on core competencies to remain efficient. Strong customer relationships and exploring digital transformation are also key to sustaining revenue. As the UK economy faces slow growth, businesses are cautious, pausing hiring and investments, but hope that government policies in the upcoming Budget will support economic recovery and investment.