The government’s contentious mini-budget announcements were met with a lukewarm reception by adland with positive impacts on business, but much concern about the longer-term impacts on society.
On Friday, Chancellor Kwasi Kwarteng unveiled a wide range of measures which Government Liz Truss says will avert a deep recession and ultimately deliver the economic growth the UK has sorely lacked over the past of the last decade.
Key policy announcements for businesses include:
A six-month energy cap to help businesses cope with soaring prices during the winter
Drop the corporate tax hike from 19% to 25% next year
Removal of IR35 rules to make it easier for companies to hire contractors
A reversal of the 1.25% rise in National Insurance rolled out in April
Low tax investment zones in all regions to encourage investment
Kwarteng has also rolled out changes for the public, including:
An energy cap for households to insulate them from price increases
Abolition of the additional 45% tax bracket for people earning over £150,000
Reduction of the basic income tax rate from 20% to 19%
Reverse the aforementioned National Insurance hike
Remove the cap on banker bonuses
The Institute of Fiscal Studies predicts public borrowing will reach £190bn this year, which includes the biggest package of tax cuts in 50 years.
The announcement of the mini-budget spooked markets, with the pound crashing against the (relatively strong) US dollar to $1.03 – its lowest level on record – before climbing back to $1.07 at the time of writing.
Labor has called the mini-budget ‘reckless’, ‘casino-saving’ and favors the ultra-rich over most UK workers. Other critics expressed concerns about whether the package would generate growth or worsen inequality.
But what does the package mean for adland?
Country asked leaders of media owners and agencies (creative, media and digital) to rate what they think of Trussonomics.
Rania Robinson, Managing Director and Partner, Quiet Storm
There was no “mini” on Kwarteng’s “tax event” on Friday. The biggest tax cuts in 50 years have stoked political divisions and fueled intense debate, especially in the adland. There have certainly been some welcome changes, for example the reversal of the NI increases and the reversal of the corporate tax hike.
However, for an industry that relies heavily on consumer confidence and growth, what real difference will this mini budget make? While tax cuts and energy caps will help boost consumer confidence, it is clearly high earners who will benefit the most, leaving the wider population still struggling with the cost of living.
Basically, it comes down to the words on everyone’s lips – trickle down economics. Truss and Kwarteng insist it’s the only way – but if you look at historical data, there’s no real evidence behind the theory. But rather it remains in the hands of those who are already wealthy, creating an even bigger divide.
So if the recession comes it won’t be equal – Londoners could still do very well. The advertising market could lose its middle ground, but there could still be value-driven spending on one side and luxury spending on the other. An uncomfortable silver lining.
Phil Hall, Co-General Manager, Ocean Outdoor
Outdoors is primarily a fixed cost business and, like everyone else, our industry has faced significant pressure from rising energy costs.
However, while the past few years have been far from easy, the industry has taken a long-term view and has continued to invest in new locations, innovation and, of course, a more sustainable product. This has a high cost and, as such, the measures announced in the mini-budget are welcome.
It’s important to remember that a thriving OOH industry benefits our economy in many ways. Improving the quality and reach of media benefits advertisers who spend their budget and stimulate our economy.
Local authorities are the main beneficiaries, with around 50p on £1 of OOH revenue funding local amenities and services. And we pay taxes, of course. I have no doubt that all profits from the mini-budget will be invested in strengthening the OOH digital product, creating a virtuous circle for the OOH industry, customers and taxpayers.
Chris Gilfoy, Chief Strategy Officer, the7stars
In a recent survey of British social attitudes, just 6% of people said they would like to see a reduction in taxes. A whopping 52% said they would increase them. Annoying.
Although the average Briton is not significantly better off thanks to the mini-budget, freezing energy prices has short-term benefits. And although the bills are higher than in previous years, this is mitigated by the good health of employment. This may dampen consumer caution that experts have predicted, but especially in small expenditures – the oft-mentioned “lipstick effect”. Something for brands struggling with “trading down” to consider when planning investments.
In the short term, we could see stamp duty savings benefit furniture and DIY brands, and the few people who benefit from tax cuts for high earners or relaxed bank bonuses should give most of the markets reasons to invest in growth.
From a business perspective, there is good and bad. Energy price caps and corporate tax changes will lead to some reduction in cost pressures, but hoped-for corporate rate changes have not happened as high street businesses face to an £800m raise next year in already difficult circumstances.
Richard Morris, Managing Director, UK and Ireland, IPG Mediabrands
We naturally want a healthy and growing economy for the prosperity of our employees, our customers and our company. The economic impact of the pandemic will last for years, while pressure on energy prices exacerbated by the war in Ukraine creates a dire picture for many millions of people in the UK. Desperate times, desperate measures? Well, in that regard, Truss and Kwarteng were on point. The tax cuts and other economic measures announced on Friday were unprecedented and an extreme example of free market economics.
The sweeping new steps taken by a new Prime Minister and a new Chancellor all speak of a gamble. The initial reaction of the currency markets is a major concern, and those who oppose it see it as greater inequality among the British population and rising inflation.
But such measures are unprecedented, so it is not yet possible to assess whether they are the right ones to get the UK economy back to growth as quickly as possible (whenever they do). The reality is that something brave was needed, but whether Friday’s actions were brave or simply reckless remains to be seen. We will have to wait and see.
Tom Skinner, Co-Founder, Go Up
Friday’s mini budget was a bit like being told you could open your presents before Christmas Day. But not just one or two on Christmas Eve – everything. The night of the bonfire. Great for Bonfire Night, but you know you’ll regret it once Christmas rolls around.
There’s no doubt that in the short term the ads are “good” for business and will make employers smile, but you can’t help feeling that a new Conservative government is opting for headlines that crowd-pleasers and announcements of short-term economic stimulus rather than dealing with the elephant in the room: paying – among other things – for Covid relief measures and recent energy bill caps.
Nevertheless, we are curious to see what we might think of these measures. Some of the benefits are obvious: lower income tax means our hardworking team earns more of their salary; the threat of a corporate tax hike stifling any incentive to post higher profits has disappeared. But what will this mean for our customers – or potential customers? As a marketing agency, our results are very sensitive to general economic confidence.
Unfortunately for us, the reality is that marketing budgets are one of the first things to be cut when businesses see a storm on the horizon, and we’ve been noticing this jitters from customers and prospects for at least six months now. . Could these measures create a sense (real or perceived) of economic well-being sufficient to persuade our customers to take the bull by the horns and press the big green button labeled “Growth”? We hope.