27 November 2023

What Does the Autumn Statement 2023 Mean for Design?

Design leaders and tax experts react to a Statement which promises to “cut taxes and reward work” to achieve growth – but may not be investing in the right tools.


Chancellor Jeremy Hunt presented an Autumn Statement promising to focus on “long-term growth”, but design leaders say the Government is missing the potential of design to meet the challenges faced by the UK.


In fact, design was given so little mention – the word only said in the context of how promised reforms will be “designed” – that industry leaders were quick to point out the oversight.

Deborah Dawton, Design Business Association chief executive comments: “The UK’s design sector needs to be better understood by Government – it is after all the sector that turns ideas into reality, be that through the services we all interact with, or the products that we use day in day out.”


Dawton highlighted the drive for businesses to transition to net zero in particular, commenting that “Little of what was spoken about will motivate business in this direction, so I believe businesses are going to have to design their way out of the economic squeeze.”


Design Council CEO Minnie Moll similarly picked up on the government’s proposed Public Sector Productivity improvement plan, arguing that design “has a critical role to play” in creating the “modern and efficient public sector workforce” that the chancellor promised.


She continues: “88% of public sector organisations use design and about half have in-house policy or service design capacity. The government should recognise designers as a driving force of public sector renewal, creating more empathetic, innovative and effective public services.”

Arts remain “significant gaps” in education policy

Despite Hunt promising investment in schools, a lack of provision for arts subjects is another blow to the design industry, many of whose prominent members signed the Creative Industries Alliance’s recent open letter, warning of the dangers of underinvestment in this area.


Moll describes the omissions as “significant gaps in the government’s education policy announcements”. She notes that the recently announced Baccalaureate-style qualification, the British Standard, “could create space in the curriculum for design and creativity, however this was not covered”.


She adds: “The pilot £6,000 early-career payments for teachers excludes Design and Technology teachers despite shortages.”


Dawton also expressed her concern about the “woeful underfunding and lack of value placed on design and arts education in schools in the UK today.”


“The challenge of skills shortages is an ongoing one for the design industry and the wider creative industries, and I would have liked to have seen a commitment to shoring up a steady pipeline of homegrown talent”, she says.


“So, we continue to call on the Government to invest in creative education to build the creative industries of the future – the ones who will be able to utilise and maximise the role of emerging technologies in society in future.”

Selective investment in “innovative industries”

Emerging technologies were among those celebrated by the chancellor as “our most innovative industries” and promised support. Hunt announced investment of £2 billion for “zero emission investments in the automotive sector”; £975m for aerospace; and £960m for the “Green Industries Growth Accelerator”.


Also announced were reforms to planning to make approval quicker and easier for infrastructure, business and housebuilding applications, as well as electricity grid access for clean energy businesses.


While Moll welcomes updates to the National Policy Planning Framework “to make it easier for architects to design-in EV charging and heat pumps”, she cautions that “fast-tracked planning routes and expansion of Permitted Development rights risks driving down design quality and environmental performance”, and notes that “design is fundamental to creating low-carbon and affordable homes”.

“Backing British business”

A number of measures were announced under the aim of “backing British business”.


One of these regarded full expensing – where “investments made by companies in qualifying plant and machinery will qualify for a 100% first-year [tax relief] allowance”, explains Michelle Denny-West, tax partner at accountancy and business consultants Moore Kingston Smith. This had previously been intended to end in March 2026, but will now be made permanent.


Full expensing ensures “that tax relief is given at the time capital expenditure is made, allowing companies to write off the cost of an investment in one go”, explains Denny-West.


However, she cautions that the scheme mostly benefits large capital-intensive businesses.


“For most in the design industry, the current capital allowances regime achieves the same result by virtue of the Annual Investment Allowance (AIA) which gives 100% relief for expenditure on qualifying assets up to the annual limit of £1 million, which will be more than sufficient for most design businesses”, she says.


Full expensing also only applies to companies, but not sole trade or partnership businesses. “However, the AIA is available to these businesses, and so most non-corporate businesses will not miss out on full tax relief for capital expenditure”, Denny-West adds.

Merging R&D tax credit schemes

With design being a research-heavy industry – Moll says that Design Council research shows as many as 42% of designers are involved in research and development (R&D) – changes to R&D allowances are something for design businesses to be aware of.


The Chancellor announced the merger of its R&D tax credit schemes for small or medium sized enterprises (SMEs) and big business, which will be effective for expenditure in accounting periods beginning on or after 1 April 2024.


Denny-West notes that a challenge for many design businesses will be “to get their heads around how the merged scheme works” and adds that it is “not as generous as the previous SME scheme they may have been claiming under”.


Within the R&D measures is an “above-the-line credit that allows companies to claim for their qualifying R&D costs, including sub-contracted R&D”, while there will also be restrictions on relief for overseas expenditure for accounting periods from 1 April 2024.


The new rate for the merged scheme will be follow the current RDEC rate of 20%, which means “for every £100 spent the company will be able to claim a repayable credit of £20”, but this will “suffer corporation tax if the claimant company is profitable”, Denny-West says.


A new tax-relief measure for loss-making SMEs was also announced, with a notional rate of 19% rather than the 25% in the current RDEC scheme. Comparing the two, Denny-West explains that “profitable companies will receive £15 after corporation tax for each £100 spent, and loss-making companies will receive £16.20”.


While the Spring Budget had already announced a higher rate of relief for loss-making R&D intensive SMEs to take effect from 1 April 2023 – working out as a £26.97 tax credit for every £100 of R&D investment – the minimum requirement of total company expenditure on qualifying R&D has now been reduced from 40% to 30%.


Moll highlights the ongoing deficiencies in R&D relief eligibility, where there is a need “broaden the definition of R&D eligible for tax relief to include all design industries and incentivise design for sustainable behaviour change.”

Personal tax cuts to “reward work”

Income tax rates will stay the same but the Chancellor announced a number of reductions to National Insurance Contribution (NIC) rates, which will be welcomed by employees and self-employed people alike.


The main rate of Class 1 employee NICs has been reduced from 12% to 10%, which will impact earnings between £15,570 and £37,700 from 6 January 2024.


For the self-employed in the same earnings bracket the main rate of Class 4 self-employed NICs has been reduced from 9% to 8%, but this will take effect from 6 April 2024.


Also from April, self-employed people with profits above £12,570 will no longer need to pay Class 2 NICs of £3.45 per week – but will continue to receive access to contributory benefits such as a State Pension. Those earning below £6,725-£12,570 will continue get access to these benefits through a National Insurance credit, without paying NICs.


The Small Profits Threshold has been frozen at £6,725 meaning that self-employed individuals with profits lower than this may choose to continue to pay Class 2 NICs voluntarily to continue to accrue entitlement to the State Pension, Denny-West explains.


Denny-West comments that while “on the face of it, the cuts to NICs for the employed are more generous than those for the self-employed”, for the “average self-employed person (quoted as being someone with profits of £28,200 by the chancellor), the overall NIC savings are in the same ballpark”.


She warns that design businesses with employees “will be under pressure to ensure their payroll systems are updated for the changes” but adds that it will be possible for employers to correct the NIC position later.


Despite the tax cuts, however, the Office for Budget Responsibility has warned that the UK is still facing the largest fall in real living standards in seven decades, with living standards 3.5% lower in 2024-5 than before the Covid-19 pandemic – although not as bad as March forecasts were predicting.

Simplification and “Making Tax Digital”

The chancellor has promised to simplify tax, which will likely be welcomed by self-employed designers.


One of the changes concerns whether businesses use cash basis (accounting done when money changes hands), or accrual basis (where accounting is done when a sale or purchase is agreed).


The default under current rules is accruals basis, Denny-West explains, with limits to being able to join cash basis limited to those with turnover less than £150,000 and a requirement to leave cash basis where turnover exceeds £300,000.


With the proposed change, eligible businesses – including “many unincorporated businesses in the design industry of all sizes” – will be allowed to continue using the cash basis as they grow, Denny-West says.


The proposed changes under the heading of “Making Tax Digital” (MTD), meanwhile, do raise concerns for self-assessment, she warns.


“Despite it being purported that MTD will make it easier for individuals to get their tax right, there are concerns that it will instead increase compliance costs and further complicate a self-employed person’s tax affairs”, says Denny-West.


“Affected business owners will be pleased to hear that the government will be looking at MTD to improve and simplify the system.”