THE AUTUMN BUDGET: A BIG STIMULUS FOR CAPITAL INVESTMENT?

A historic Autumn Budget was delivered on 30 October, in which Rachel Reeves, the first female Chancellor, announced significant changes in government borrowing fiscal rules. This was fuelled by the intention of generating large sums of money for capital investment in public services over coming years. While these changes aim to boost capital investment, the broader impact on businesses is mixed. Rising employment costs, tighter fiscal controls, and incentives for innovation will create both pressures and possibilities for UK industries.

The Current UK Financial Climate

The UK has long struggled with a productivity gap compared to its G7 peers, and business investment plays a crucial role in understanding this disparity. Productivity, or the efficiency of producing goods and services, has lagged in the UK since the 2008 financial crisis, growing slower than in countries like Germany, France, and the US. This slower growth can partly be attributed to lower levels of business investment.

Increasing business investment in the UK could significantly improve productivity. Government incentives, such as tax breaks on research and development, are steps in the right direction. However, for the UK to close its productivity gap with other G7 nations, a consistent focus on fostering innovation, upskilling the workforce, and encouraging high-impact investments will be essential to building a more resilient, productive economy. The cash injection announced during the budget will have a direct effect on business investment, however other factors might prove to be of longer-term significance.

KEY HIGHLIGHTS:

• UK Government announces change in government borrowing fiscal rules: A strong emphasis on generating capital investment in public services.
• Changes to employment legislation: Rises in minimum wage, and employers national insurance contributions.
• A push for investment into automation an advanced technology: As the cost of employing labour rises, companies seek to maintain profit margins by investing in automation and advanced technologies.

How the Autumn Budget will affect businesses

Over recent weeks and during the budget the Government has announced several measures that will significantly raise the cost of employing people. These include changes in employment legislation that extend workers rights, a large increase in the minimum wage and most significantly a very large rise in employers national insurance contributions. Over recent years there has been a tendency within the UK for companies to simply employ more people (on relatively low wages) as a means of increasing output, rather than investing in new technology to improve the productivity of those already employed.

Increased labour costs, such as those now applying, can paradoxically stimulate capital investment, driving businesses to innovate and improve efficiency. As the cost of employing labour rises, companies seek to maintain profit margins by investing in automation and advanced technologies. This shift allows them to reduce reliance on labour, enhancing productivity and competitiveness. Ultimately, this dynamic encourages businesses to adopt new technologies and practices, fostering an environment of growth and innovation.

How can asset finance help?

It is only by improving productivity through increased capital investment that our economy will be able to grow in a way which maintains or improves living standards. Leasing and asset finance, especially when combined with the continuation of accelerated capital tax allowances, can provide the means by which much needed investment can take place over coming years.  With 50-years of experience in the UK asset finance industry, we’re committed to guiding and supporting businesses through the evolving economic landscape. Our work across 9 different sectors asserts us as a leader in asset finance. We help our partners to unlock their potential, and efficiently manage their budgets.

Contact us to find out more about how we can empower your business growth.

Andy Milsom, Head of Partner Training & Development at BNP Paribas Leasing Solutions
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.