1 month ago
The term ‘mini budget’ is now synonymous with chaos in British politics. In September 2022, then-Chancellor Kwasi Kwarteng's announcement, which included £45 billion of unfunded tax cuts, rocked the UK’s economy. In this article, we explore how this ‘growth plan’ affected SMEs across the country and the broader economic consequences.
The aftermath of the mini budget was a state of confusion and concern within the UK and on the international stage. Top officials were reportedly bewildered by the sudden shift following the announcement. The Chancellor was forced to reassure American bankers, politicians and diplomats about the UK's commitment to fiscal responsibility.
Prime Minister Liz Truss took drastic action by reversing a corporation tax cut, leaving businesses and investors uncertain about the government's direction on British shores.
Small to medium businesses thrive on stability and predictability. The mini-budget's chaos increased uncertainty, discouraging investments and growth plans. Many SMEs had no choice but to rethink their financial strategies due to the Government pulling tax cuts and increasing borrowing.
The Government's need for additional funding led to higher interest rates, affecting SMEs' access to credit. The rising cost of borrowing strained the financial health of small businesses, making it harder for them to secure loans for growth.
The mini budget fiasco also dented the Government's credibility, impacting the confidence of businesses and investors. The erosion of trust had a less-than-positive effect on businesses’ willingness to make long-term financial commitments.
SMEs trading overseas felt the effects of the mini budget through a weakened pound. A sharp drop in sterling's value post-announcement led to increased currency hedging costs for businesses exporting or importing goods. This approach is effectively insurance for currency exchange, attempting to limit the effects of currency fluctuations on performance.
Both the Conservative Government and the opposition now prioritise fiscal responsibility and aim to meet five-year debt targets. This approach has led to investment cutbacks, casting doubt on massive infrastructure projects like HS2.
Major investors are now more cautious about investing in the UK. The mini budget's impact on the value of GBP has prompted them to factor in currency hedging, increasing the cost of capital for all businesses.
The Labour Party has connected the mini budget misstep to rising mortgage costs and is now pushing for more robust economic forecasting. Economic policy is increasingly determined by its alignment with Office for Budget Responsibility (OBR) forecasts, highlighting a return to reliance on expert guidance and less experimentation.
The mini budget of September 2022 will go down as a turning point in British economic policy. SMEs bore the brunt of uncertainty, credit challenges and increased costs as a result of the announcement.
As the Government and the opposition seek to restore financial stability and investor confidence, the UK's economic landscape still faces a period of adjustment and adaptation to the new reality.
For SMEs left to deal with the mess left behind, finding the right funding on the right terms can be difficult. Fortunately, there is help available.
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