Read the full Q4 2025 Quarterly Review
4 minute read
This time last year, we had just experienced the shock of the UK Government’s choice to increase employer taxation to plug the gap in public finances, a move that to many of us seemed at odds with their stated intention to grow our economy.
At the time, we commented that: “Industry has repeatedly said, please don’t think that you can shift that burden to employers without that impacting on their employees, and here the increases for National Insurance, National Living Wage and an absence of broader incentives to build business growth results in two outcomes. The first is that companies move to recovery mode as they look for the savings that will protect their business from these increases. That’s rarely a tactic that enables growth to be at the centre of the organisation’s focus, and those savings will likely impact employees in some shape or form. The second is that they impact that most critical but fragile of commodities – confidence – evidenced in this survey by the first time that our overall summation of optimism has turned negative for the first time in four years.”
We were one of many voices issuing a similar clarion call, so no surprise that this past year has been an accurate match for that concern. Our final survey of the year displays the ongoing consequences of that change, particularly in the sluggish overall order rate, the impact this has on output, and erosion of margin outlined in our results.
More surprising are the indicators that despite the difficulties of the economy, companies appear to have opted to continue their planning for recovery, evidenced principally in a pickup in optimism coupled with an intention to retain staff.
The lead up to the budget saw lots of testing the water on the different ways that the unpopular (with someone) ways to fill a fiscal gap would be closed, but in the last few days the principal feeling has been one of something’s missing? The trailed items of ‘mansion taxes’, limiting the value of a cycle to work bike and pension salary sacrifice felt trivial against a gap of £30bn, leaving the question of what else and who to foot the bill? With fingers crossed that this time it wasn’t to be industry.
From what Industry actually got, the kindest thing you could say is it’s an improvement on last year, with no direct equivalent to the bombshell that employer National Insurance (NI) increases brought.
The plan to extend production from existing gas and oil fields will be welcomed by many of our members, but the silence on the energy profits levy does not bode well for a managed energy transition that does not leave people behind.
The decision to freeze tax thresholds – the largest single element at £8bn – includes employer NI, and so each year that will add another on-cost that may bring revenue to the public purse but adds zero value to the businesses paying it. Similarly with changing the rules for salary-sacrifice pension contributions where we expect there will be both an employee and employer impact.
The pre-announced significant increase in minimum wage runs the risk of making it more expensive to create new jobs for young people where we have rising unemployment, and we know that this also pushes up the rest of the organisation’s salary expectations, raising costs and reducing competitiveness.
Once again owner-managed businesses may feel that they have been singled out with the rise in dividend tax likely to weigh heavily on investment and entrepreneurship, and reducing the Capital Gains Tax relief on a sale to an Employee Ownership Trust (EOT) may directly impact the same group. Given the social value that EOT’s can bring, choosing a path likely to disincentivise an EOT feels like an odd direction for a Labour-led Government.
And on the day that the OBR couldn’t wait to release all this good news, including their forecast for a reduction in productivity, the decision to reduce the writing down allowance (WDA) deserves a particular mention. Not only will this increase an employer’s corporation tax liability, but additionally it has a negative impact on business cash flow and stifles the clear investment incentive that drives productivity up.
So, whilst we should be balanced in our appraisal that this doesn’t include the single-sourced devastating impact of last year’s budget, the mix of smaller impacts might feel to some like death by a thousand cuts. And once again the ambition to grow our economy that we all agreed with then, and still do now, seems nowhere to be seen.
Paul Sheerin
Chief Executive
Scottish Engineering
