The Prime Minister’s speech on 4 January was intended to clarify the aims and aspirations of what is still a very new administration, coming after a period of almost unparalleled political and financial turmoil. Objectives were set and some rather broad promises made.
The UK’s business community is facing the most comprehensive set of challenges in modern times, as factors largely outside its control threaten havoc all over its profit and loss accounts and balance sheets.
What did the speech offer the business world and what more does it need to tackle these challenges?
Key business challenges in 2023
The labour market
The Prime Minister pointed out that a quarter of the potential labour force is currently inactive and spoke of encouraging these people back to work to fill the 1.2m job vacancies.
Entrepreneurs know all too well what this situation means: reduced operating hours and therefore profits. For example, hospitality businesses face soaring labour costs as they have to bid up pay to recruit or retain staff; investment projects are cancelled for lack of labour resource; and a demoralised, exhausted and inefficient workers lead to poor service and high staff turnover.
Urgent action to increase the labour force is essential.
Business investment
The speech talked of innovation and promised an increase in the government’s R&D budget to £20bn, though it didn’t explain what period that might cover. A previous Business Secretary had already committed to an annual spend of this same figure of £20bn in March 2022, so quite what this new spend actually means is as yet unclear.
Notwithstanding this uncertainty, the only way the PM’s promise to grow the economy can be realised will be if the UK’s very poor record of business investment is addressed and that means more than just government-funded R&D and the present limited incentives through the tax system.
Recent research did identify tax breaks as a factor in persuading companies to invest, but neither were they the only nor the most important persuaders. The availability of sufficient skilled labour rated higher, which comes back to boosting the labour market. Effective and affordable public transport and travel infrastructure was another key element. Economic certainty came top of the poll.
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Energy costs
The government’s present package of support for business’s soaring energy costs ends on 20 March. We are told that the details of ongoing support will be announced in the second week of January, but already the Treasury is briefing that the scheme is too expensive and that the overall level of support after that is likely to be halved. As always, the devil will be in the detail of the extended scheme.
It has been estimated that across the economy, business energy costs rose by 200% in 2022, so any broad scale reduction in government price cap measures could have serious consequences. For some energy-intensive sectors such as hospitality and manufacturing, the increase in costs has been far higher. Without urgent clarification of extra help targeted at these sectors, the outcome will be catastrophic, especially for smaller businesses without the financial resources to withstand this level of financial stress.
Action this day!
If the economic element of the Prime Minister’s five promises are to be fulfilled, these are three key areas where more needs to be done and quickly. The situation now is every bit as bad as it was at the start of the pandemic, if not worse. Decisive action must be taken to boost and protect UK businesses.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.