During December, members continued to reflect on the Autumn Budget and the impact on their businesses with the rise in Employers’ National Insurance (ENI) dominating discussions.

December also provided an opportunity to look forward to the coming year and what 2025 might bring.

A big thank you to ICAEW members who have provided insight throughout 2024, which has helped shape ICAEW content and events and informed discussions with policymakers.

Autumn Budget

The announcement of an increase in ENI presented members with decisions. Passing on costs through increased prices, reducing wage increases or cutting headcount were three options most likely to be on the table.

A member working in manufacturing commented: “The ENI impact is likely to curb pay rises next year. We’re trying to keep staff so as not to impact production efficiency, but find ourselves in a precarious position unable to pass on price increases to retailers – we’re stuck between a rock and a hard place.”

A retail business made international comparisons: “It’s cheaper to employ people in our European operation because of the Budget. It now makes sense to do less here. Prices will be passed on to the end consumer and employees will be impacted through lower wage increases and higher prices.”

Others raised concerns about the impact on supply chains, predicting that it would be likely to cause some businesses to disappear “as it’s all becoming too much”.

An insolvency practitioner in the West of England identified sector-specific challenges with construction companies seeing input costs shoot up and hospitality hit hard “especially if it doesn’t have a good Christmas”. An outlier appears to be IT, where for some post-COVID growth has been double-digit and consistent.

Outlook for 2025

Despite the challenges of 2024, businesses remain resilient, with a member working in retail cautiously confident: “Customers seem optimistic – they’ve got a bit of money and are saying let’s go for it.” Time will tell if Christmas exuberance leads to a positive January; last year saw January sales come early, with a difficult start to the year for many.

Global and domestic pressures facing the UK were summarised at the start of the month by ICAEW’s Economies Director Suren Thiru, who warned that after a strong start to the year, low productivity, supply shortages and rising energy costs have begun to weigh on the UK’s economic performance.

Next year, the international landscape will become increasingly important as pressure on domestic sales prompts more businesses to look overseas for growth. ICAEW’s Business Confidence Monitor (BCM) measures sentiment on UK domestic sales and international exports. Q4 2024’s results released early next year will make interesting reading.

A member who advises clients on international expansion noted: “The UK is great at innovation, but marginalised by the scale of investment in the US and China.”

A manufacturing business that exports most of its goods cited geopolitical uncertainty as growing cause for concern: “The UK cost base has increased and eroded margins – international competitors can be more price competitive. The big question is what the new Trump administration will bring in the US and the impact on the rest of the world.”

Competition for spend appears to be ramping up, noted a practice firm advising retail and hospitality clients. “Next year will mean job cuts while trying to maintain the customer experience.”

Indeed, tough decisions abound. There have been reports of asset disposals this year to address cash-flow challenges. One example involved an education establishment selling a building, now repurposed as a hotel. If demand increases in 2025, there will be a constraint on space. Selling assets to survive compromises future income potential.

Similarly, any knee-jerk reaction to rising labour costs could fuel capacity and recruitment challenges should the economy pick up. Looking back to the financial crisis of 2008, businesses that slashed headcount often regretted the decision 12 months later when they struggled to hire to meet recovered demand.

Members have debated the possibility and probability of a Spring Budget in March and whether tax increases this year were just the start. In many respects it’s Groundhog Day. Looking back to ICAEW’s Manifesto published in January, one of the principal asks was for more stability and certainty. Without a stable policy and economic environment, businesses abandon or postpone investment decisions. A lack of investment means curtailed productivity and stunted growth.

Now at the end of the year, much has changed, but uncertainty prevails. Each new year presents both challenges and opportunities, but focusing on the opportunities will be key for business success and delivering the growth the UK desperately needs.

In 2025, ICAEW will continue to use member insights to inform discussions with policymakers and members are encouraged to share their insights directly with the ICAEW business team.

We would like to take this opportunity to wish ICAEW members a very happy festive period and a prosperous 2025.