A Labour Government and UK business…

With a Labour Government now nearly a quarter of the way into its first 100 days in power, what will this change in government mean for UK businesses up and down the country?

The conundrum for this new Labour Government is how do you not raise taxes, especially in the short term, while generating the income to pay for the investment required to tackle the challenges Great Britian is facing. The Labour Leadership has heavily highlighted economic growth, with the party asserting that it is the best and sole path for the UK economy to generate the necessary resources to tackle the numerous challenges. While we await further details on the Prime Minister’s plans to achieve these goals and how the new government will support UK businesses, let’s look at what we know about Labour’s policy priorities.

Labour’s business taxation conundrum

Rachel Reeves, Great Britain’s first female Chancellor of the Exchequer, has said that Labour won’t raise taxes to promote growth. Labour will implement "clear rules" on tax and spending policies to ensure economic stability. To provide this ‘greater stability in business taxation, the new government plans to cap corporation tax at 25% for the entire parliamentary term. This measure aims to offer predictability for businesses, in the hope it will facilitate long-term planning and investment decisions to drive growth

Additionally, Labour will roll out a new 'tax plan' that allows businesses to fully deduct the cost of their equipment and other capital investments. The Full Capital Expensing scheme, which was first introduced under the Conservatives in the immediate aftermath of Covid, is to be made permanent and aims to help businesses reinvest and update their operations. Annual investment allowances will also be increased to make it easier for small businesses to afford these investments.

Despite ruling out increases to other taxes like VAT or income tax, one tax that a new Labour Government could increase is Capital Gains Tax (CGT). It’s widely thought that CGT rates will likely increase sooner rather than later due to the need for higher tax revenues should economic growth slow, CGT is a key lever for promoting investment and growth. Any changes to CGT rates could be implemented quickly so business owners and investors should consider the potential implications of this when planning.

“Leveling up” business growth opportunities

Many reports, including the Treasury Select Committee Report on access to business finance, have highlighted the difficulties SMEs in particular face in accessing the funding they need to grow, this is especially acute outside of London. To address this, Labour plans to reform the British Business Bank (BBB), giving it a stronger role in supporting and investing in small businesses beyond the Capital. No specifics about the shape and scope of this reform are known yet, or how funding will be allocated more fairly, but when the details are known we’ll be securitising them.

Eliminate late payment of invoices

Late payment of invoices has been a big issue for many SME’s for as long as I can remember, and it can have a critical effect on a business’s cashflow. Although solutions like Invoice Finance can really help here, knowing when your invoices will be paid, and having the ability to rely on fixed dates for payment would drastically help all businesses. Sadly, many invoices are still settled late, putting unnecessary pressure on cash.

Labour has pledged to eliminate late payment of invoices to small businesses by requiring large companies to report their payment practices in their annual reports. This measure is expected to ‘name and shame’ late payers and hold them more accountable.

A new UK and EU relationship?

Labour repeatedly said in the build up to the election that it would take a more “optimistic” approach to Britain’s relationship with the EU.

While they haven’t given specifics of what that ‘optimistic approach’ might mean in reality, they have said that they plan to help small businesses export more by creating a trade strategy with straightforward advice for new exporters.