Economic outlook and Budget recommendations

As outlined in ICAEW’s September Economic Update, the UK economy enjoyed a strong first half of the year, but falling productivity suggests that significant challenges remain. While ICAEW's Business Confidence Monitor (BCM) showed business sentiment rose to its highest level in more than two years in Q2 2024, the recovery remains precarious.

Structural challenges persist with weak productivity growth, an ageing population and inactivity levels in the workplace dragging down economic performance and putting pressure on public services. The muted performance of BCM’s indicators on investment activity suggests that the UK’s recovery from recession is built on fragile foundations.

Alison Ring, ICAEW Director of Public Sector and Taxation, commenting on the latest public sector spending figures warned of tough choices ahead as spending continues to rise. She called on the Chancellor to think not just about controlling spending in the Budget on 30 October, but how to lay the ground for economic growth.

Ring’s comments signalled the key messages from ICAEW’s formal pre-Budget submission to HM Treasury. Drawing on the expertise and experiences of ICAEW’s members, the institute has called for an urgent review of the UK’s tax system and urged the government to seize this opportunity to consider wholesale reforms to a range of taxes to boost growth.

Proposals include reforms to VAT to make it less complex and costly for businesses and HMRC, as well as improving certainty of employment status for tax purposes. Both measures would remove barriers to business growth, ICAEW argues.

The institute also called on the government to fix its underlying debt measure to allow for an increase in the investment the UK needs for growth, as part of a long-term fiscal strategy that puts the public finances on a sustainable footing.

Business tax roadmap

Aligned with its Budget recommendations, ICAEW is in ongoing discussions with the government about reforms to a range of taxes, including business rates, which the institute believes would be enhanced through better use of data and technology.

Alison Ring and Frank Haskew, from ICAEW’s Tax Faculty, have participated in roundtables with James Murray, Exchequer Secretary to the Treasury (and new Chair of the HMRC Board), on the government’s planned business tax roadmap and a letter has been sent to officials outlining ICAEW members’ priorities.

ICAEW’s Tax Faculty has also warned MPs that HMRC’s handling of research and development (R&D) tax relief claims is causing significant disruption for companies undertaking genuine R&D activities.

The Chancellor has announced that HMRC will soon launch a consultation on electronic invoicing  to promote its use across UK businesses and government departments. A new digital transformation roadmap is expected to be published in Spring 2025 and will set out HMRC’s vision to be a “digital-first organisation underpinned by customer insight”. The roadmap will include measures to ensure support for customers who cannot yet interact digitally.

Industrial strategy

The Chancellor has confirmed that the government’s planned industrial strategy will be at the heart of its mission to grow the economy. It will focus on:

• making the UK a “clean energy superpower”;
• accelerating the transition to net zero;
• breaking down barriers to regional growth; and
• building a secure and resilient economy. 

A green paper will be published around the Budget outlining the long-term sectoral growth and priority industries of the government, with the final strategy due in the spring of 2025 following a consultation with business.

ICAEW hosted a “better regulation” roundtable in September attended by officials from the Department for Business and Trade (DBT) and a range of regulators. We expect further consultation on the smarter regulation programme after the Budget, closely integrated with the industrial strategy to maximise the effectiveness of regulatory powers.

Political party conferences

ICAEW attends the major political party conferences to engage with politicians, policymakers and businesses on the issues that matter most to our members.

Iain Wright, ICAEW’s Managing Director, Reputation and Influence, attended the business day at the Liberal Democrat Party Conference. He heard from senior party figures on topics including industrial strategy, business rates and small business finance.

Wright also attended a business reception with Liberal Democrat Leader Sir Ed Davey and was pleased to talk to new ICAEW member MPs Chris Coghlan, MP for Dorking and Horley, and Charlotte Cane, MP for Ely and East Cambridgeshire. Our members in parliament are important allies of the institute, as they represent the voice of our profession at the highest levels of policy and political discourse.

The following week, Wright was joined by ICAEW’s Chief Executive, Alan Vallance, and President, Malcolm Bacchus, at the Labour Party Conference. In a video from the conference, Vallance outlined how ICAEW is engaging with the government and his desire to understand more about their vision.

He had a wide-ranging discussion with Lord Livermore, Financial Secretary to the Treasury, covering business tax reform, industrial strategy and the role of chartered accountants in achieving growth and prosperity.

Vallance also met DBT Ministers Gareth Thomas (responsibility for small businesses) and Justin Madders (responsibility for audit reform and employee rights legislation). Meanwhile, Wright joined an ICAEW and Fabian Society panel session on the future of business and trade alongside the Business Secretary, Jonathan Reynolds.

ICAEW will be heading to the Conservative Party Conference and co-sponsoring an event with Enterprise Forum, which will be attended by Shadow Chancellor Jeremy Hunt.

Audit reform

In September, ICAEW’s CEO also met with Eoin Parker, Director of Business Frameworks at DBT, who oversees many of the policy and reporting areas of interest to ICAEW members.

As well as learning about ministerial priorities, Vallance discussed the government’s timetable on audit and corporate governance reform. A draft Bill is expected in Spring 2025, with dialogue with stakeholders, like ICAEW, continuing for the rest of 2024.

ICAEW’s Audit and Assurance and Corporate Reporting Faculties are convening groups of interested members to discuss important policy issues, including:

• the scope and definition of PIE status;
• the implications of extending enforcement action against all directors; and
• the cost of audit.