‘Right strategy, bad timing’: UK ad industry reacts to shock mini-budget
A mini-budget, but in name only. The chancellor’s announcement of the UK’s biggest tax cuts in 50 years has got advertising leaders debating what it means for the industry and the country’s already fragile economy. Here’s what they’re saying.
Today's mini-budget has far reaching implications for the UK marketing industry / Frantisek Krejci
UK chancellor Kwasi Kwarteng’s first mini-budget under new prime minister Liz Truss was much wider-ranging than its name suggests, ushering in the biggest tax cuts seen in Britain since 1972 in a move designed to stimulate economic growth, but which critics warn could exacerbate inflation.
Income tax will be cut in England, Wales and Northern Ireland, with the top 45p income tax rate on earnings of more than £150,000 a year abolished and the new highest rate set at 40p. The mini-budget also reverses the planned National Insurance rise, cancels the UK-wide rise in corporation tax that was due to increase by 6% in April 2023 and lifts rules that limit bankers’ bonuses.
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Sir Martin Sorrell, chief executive of S4 Capital, told The Drum: ”I have sympathy with the strategy – low regulation, low tax – particularly post-Brexit, but the timing is awful. Economically, how do we pay for it?
”And politically, these measures won’t endear the Conservatives to the Red Wall – as PM Johnson did. It also pits the chancellor against the Bank of England. These cuts in taxes will stimulate inflation when the Bank of England is trying to reduce inflation. Corporation tax cuts don’t stimulate investment, it’s the business environment that drives investment – it’s too uncertain at the moment.
”Seems to me the government is making a political bet and gambling on trying to stimulate growth before the next general election. The debt, borrowing costs and UK balance sheet are huge short-term burdens. Right strategy, bad timing.”
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Leaders of the UK’s advertising trade bodies, meanwhile, gave the mini-budget a cautious welcome and encouraged Kwarteng to draw on the industry to help stimulate economic growth.
Richard Lindsay, the IPA’s director of legal and public affairs, said: “The chancellor’s mini-budget is intended to boost economic growth, this new government’s stated priority. Advertising fuels the economy and drives growth, promoting competition and driving down prices for consumers – critical during the cost of living crisis.
”We hope that the new government recognizes this and promotes policies that will enable agencies to do their best work and help brands help their customers. Specific measures such as the corporation tax cuts should be welcomed by businesses, and the new investment zones will hopefully benefit agencies across the country.”
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Stephen Woodford, chief executive of the Advertising Association, added: “We welcome the temporary measures for business to stabilize energy prices and no doubt companies will benefit from the cut in corporation tax. We remain in ongoing conversations with ministers and civil servants about how our advertising industry can best support the government’s growth ambitions.
“Companies do need certainty most of all and a focus on productive and sustainable growth is so important given the economic headwinds and inflationary pressures we face. To that end, it is worth reiterating that advertising is a driver of economic growth and it increases competition, which in turn leads to lower prices.”
Kwarteng has also made changes to employment law and regulations regarding contractors that will impact the marketing industry.
The primary change related to the repeal of two amendments to IR35 changes made in 2017 and 2021, which affected both private and public sectors. Those changes put the onus of deciding whether contractors were actually used as regular employees on businesses. Critics of the legislation said it placed undue pressure on businesses to stifle growth; this is the line Kwarteng has chosen to take. The repeal takes place in April.
For the marketing industry, this could allow companies to hire from larger pools of contractors more easily. Taking a wider look, however, the mooted freeze on advertising in the face of a cost of living crisis is unlikely to be undone by the budget, which heavily favors the wealthiest in the UK. The 45p tax rate for the top earners in the UK – who earn over £150,000 a year – is being abolished from April.
Who gains from today's Budget tax-cutting measures? pic.twitter.com/xOAnWQu1Zp
The budget – which can barely be classed as ‘mini’ in its scope, but is classed as a ‘fiscal event’ as it does not accompany official predictions – introduced the largest tax measures since the 1970s, in what the government says will be a jolt to the inflation-hit economy. The pound plummeted on this morning’s announcement.
Kwarteng said: “This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s. We are determined to break that cycle. We need a new approach for a new era focused on growth.”