Potential tax increases and their impact on businesses
In recent reports, former Prime Minister Sir Tony Blair has forecasted potential tax increases that could have an impact on businesses across the UK.
The Tony Blair Institute’s chief economist predicts taxes may need to rise by 1.9 percentage points of GDP by the end of this Parliament to stabilise debt, potentially equating to over £50 billion.
Understanding the rationale for potential tax increases
Several factors contribute to the predicted tax rises.
As the population ages, healthcare costs are rising. The increasing number of long-term sick individuals adds further pressure on the NHS, necessitating higher public spending.
Additionally, the transition away from oil and gas is decreasing tax revenues from these sectors. If the economy is to remain stable, this loss needs to be compensated for.
Higher taxes are seen as a necessary measure to avoid the austerity measures of the past, which had infamously severe social and economic repercussions.
Despite efforts to increase productivity, the current strategies may not be enough to meet future economic challenges. This includes using artificial intelligence and other technological advancements.
The impact on businesses
Businesses are likely to experience several effects due to these potential tax increases, including:
- Higher operational costs due to suppliers raising prices
- Reduced investment
- Increased prices, which can affect demand and overall economic activity
- Changes in labour activity and higher wages to attract skilled workers
On top of this, you might find that your compliance requirements increase, especially if your processes need adapting to new taxes.
Strategies for businesses to overcome potential tax increases
Businesses can adopt several strategies to soften the impact of potential tax increases, including investing in technology and streamlining operations which can help reduce costs and improve productivity.
Tax incentives are often available for businesses to claim, including ‘green’ investments and research and development (R&D) tax credits.
Expanding into new markets or offering new products and services are also effective strategies, as they can help spread risk and reduce dependency on any single revenue stream, making businesses more resilient to economic changes.
It is also a slightly obvious but still an important point to regularly review financial plans and carry out scenario analyses that can help businesses prepare for various tax scenarios and develop contingency plans.
It will be a lot clearer in the coming months as to what taxes will change and how this will affect businesses, but forecasts such as the one from Sir Tony Blair are worth listening to, even if it just to cover the worst-case scenarios.
Our team of specialist accountants have been diligently keeping a close eye over national tax matters as they unfold.
We are here to provide expert advice and guidance. If you would like any assistance with planning for potential tax changes, contact us today.
