Worcester Business School - Budget update for the West Midlands

As we come to the end of what in the world of business is often known as ‘budget month’, it’s a time to reflect on the year that was and prepare for what’s to come.

And this year, more than most as we anticipate a general election, is a chance to take-stock and consider the changes and challenges that lie ahead.

At the recent Economic Conference, hosted by Herefordshire and Worcester Chamber of Commerce, local businesses came together to set out priorities for the forthcoming year.

Worcester Business School was delighted to be among them, as we reflected on the recent Chancellor’s speech and the Government’s priorities and predictions for the state of the economy and its implications for the West Midlands.

Some of the key highlights announced by the Chancellor, included:

  1. A further 2% point reduction in National Insurance contributions - following the 2% point reduction announced in the Autumn Statement 2023, a further 2% point reduction (which comes into effect in April 2024) will be welcome for many. According to OBR predictions, on an average salary of £35,000, employees will see an increase (after tax) in their income by £450 per year. Having said that, pensioners would have arguably preferred a reduction in Income Tax as this group are less likely to be impacted by changes to National Insurance.
  2. Increasing the Child Benefit income threshold - middle income families will have also welcomed the changes to the High Income Child Benefit Charge meaning that Child Benefit is not withdrawn in full until individuals earn £80,000 or more, rather than the current £60,000.
  3. Extension of the VAT threshold from £85,000 to £90,000, offering some support for small businesses.
  4. The freeze on alcohol duty, due to end in August, will now continue until February 2025, as will the freeze on fuel duty, with the 5p cut in fuel duty on petrol and diesel due to end later this month being extended until 2025 – just long enough to weather the storm of an election year.

The Chancellor also announced proposals to abolish the current tax treatment for UK resident non-domiciled individuals (often referred to as “non-doms” by the media) from 6 April 2025. Some commentators, have suggested that this is a move that would see him poach one of the Labour Party’s key fiscal policies.


So did the budget signal growth for our economy?

Marcus Wright, economist for NatWest agrees with Jeremy Hunt’s prediction that growth is on its way and suggests that the Government’s recent budget shows signs that the economy is now beginning to move from a position of resilience towards one of growth, with moderate forecasts for growth in the services and manufacturing sectors from the middle part of 2024, and with assurances that murmurs of recession are now behind us.

Spending habits across the region have changed, where we have sacrificed spending on clothing and retail during the cost-of-living crisis in favour of sustaining investment in those home comforts (such as our Netflix subscriptions). With energy bills expected to continue to fall, there is an expectation that this will bolster growth in household expenditure. Inflation does seem to be in retreat, but the future outlook is still somewhat unclear. This was indicative of the monetary policy committee’s February meeting to consider changes to the Bank of England interest rates. It was telling that while the majority voted to keep rates as they are, there were some outliers who voted for a rise whilst others who voted for a fall in rates – such is the sense of uncertainty of what lies ahead. It will be interesting to see if, and when interest rates will start to fall.


What does this mean for our region?

According to Worcester County Council one thing that is providing regional economic resilience is relatively low local unemployment, albeit it is anticipated that job vacancies have now peaked among the 27,000 businesses across the county. Changes in regional demographics point to a surge in young people entering the labour market at a point at which the workplace is experiencing a huge change in demand for new skillsets to meet the needs of businesses facing the challenge of greater adoption of AI, cybersecurity and other digital technologies.

These changes across the region are driving the need for a stronger focus on workforce planning, which is one six priorities highlighted by the Herefordshire and Worcestershire Chamber of Commerce in its Economic Manifesto, launched just days after the March budget. This manifesto identifies the need for greater focus on skills development, alongside prioritising cybersecurity and support for international trade, to promote sustained business growth.

A general election with a potential change of government later in the year may not help to provide stability, but equally it is not anticipated that any changes from the election are likely to have an immediate impact on the regional economy.

The Greek philosopher Heraclitus famously stated that ‘the only constant in life is change’; Harvard Change Management scholar John Kotter suggests that the pace of change is accelerating ever faster, and 2024 looks set to be a year where change will be challenging us from all corners of life - from demographics to geopolitics to technological transformation.

One thing remains constant amid such changes: Worcester Business School is ‘open for business’ to serve the changing needs of organisations from across the region, providing support for change leadership and management along with cyber and digital solutions. The School has a dedicated Business Development Team ready to provide customised support to businesses, (for further information contact joanne.murphy@worc.ac.uk).

Dr Scott Andrews is Head of Worcester Business School and Boyd Hargreaves is a Senior Teaching Fellow in Economics.