Predicting the future is never easy but one thing that businesses will undoubtedly face in 2016 is change.
With this in mind we have selected five ‘things to watch’ in 2016 to help businesses keep ahead of the game this year.
1. EU uncertainty
The ‘Brexit’ referendum has to happen by the end of 2017, with many expecting the vote to go ahead at some point this year. It’s too early to guess what will happen and with the on-going issues, such as the continued weak recovery in Europe and the migrant crisis, public opinion is likely to be changeable right up until a formal vote. As demonstrated in the general election, prediction polls cannot be relied upon!
One thing that’s clear, however, is that uncertainty about the UK’s future in Europe is playing a part in wavering business confidence. Businesses need clarity on this issue, which can now only come from an EU referendum, whatever the result.
- UK's mid-sized businesses overwhelmingly in favour of reformed EU relationship
- How would a Brexit impact UK business?
- Should the UK stay in the EU?
2. Global economy headwinds
The Q1 2016 ICAEW/Grant Thornton UK Business Confidence Monitor shows UK business confidence has fallen as companies react to weaker global economic.
The impact of low oil prices along with a slowdown in the Chinese economy was felt in stock markets around the world in January. As a result, some economists are predicting massive turbulence in 2016 with talk of echoes of 2008’s financial crisis.
- Beware the great 2016 financial crisis, warns leading City pessimist
- RBS cries 'sell everything' as deflationary crisis nears
3. Tax strategy
The amount of tax multinational corporations pay (or don't pay) has dominated the media in January 2016, with a high-profile UK tax settlement now facing investigation by the European Commission to confirm it is within the boundaries of state aid regulations. There continues to be increasing public and political furore over the taxation of international businesses meaning media focus is unlikely to dissipate any time soon.
In an effort to combat the global tax avoidance strategies of multinational companies, G20 finance ministers have endorsed the OECD's proposed reforms to the international tax system – the Base Erosion Profit Shifting (BEPS) reforms. Tax management within multinationals has never been more challenging and the BEPS reforms, while welcome, won't necessarily bring much-needed simplification.
However it plays out in the media, tax remains a very hot topic and companies need to ensure they have considered their tax strategy.
4. Increasing employment costs
In April 2016 the impact of the National Living Wage will cause minimum wages for those aged 25 and over to rise by nearly 7.5%. From April 2017, a 0.5% Apprenticeship Levy on pay will be charged to employers where the payroll exceeds £3 million. And small employers will have an added cost to payroll of 1%, brought on by pensions auto enrolment, scheduled to rise to 3% by 2019.
All in all it's more expensive to employ people than ever before. Added to this the likely pressure to award pay rises (to retain talent in what could now be considered a buyer’s market), or the knock-on effect of minimum wage rises for roles that command a small premium over the minimum wage threshold. Those who are savvy to the rising costs will already be seeking to identify a range of efficiencies to implement in their business to counteract this.
5. Business rate rises
In his last Budget the Chancellor announced a ‘radical’ review of UK business rates with the findings to be announced in the 2016 statement.
Business rates are a major cost for many companies, particularly those in the retail sector, and the demise of the high street in some parts of the country has been blamed on extortionate rates.
There will inevitably be winners and losers when the new, revised rates are announced in March, with predictions showing that some areas of London could see rates soar by as much as 400% while, conversely, rates could plummet in parts of the North.
While 2015 was primarily a year of consolidation and cautious growth, 2016 looks set to be a year of challenge and change.
The overall winners will be those that truly understand the critical assumptions they and their senior management teams are making about their internal and external operating environment, enabling them to keep these assumptions under continuous review and so responding to the shifting environment more effectively than their competitors.
At Grant Thornton we have conversations daily with our clients about the changing landscape ahead and the assumptions they are making in their businesses as a result. To help business leaders to navigate periods of accelerated change, we have also developed the CEO Room – a framework tool for senior business leaders to challenge, respond to and capitalise on change.
To find out more about these issues and how they could affect your business, or to discuss booking a CEO Room session, please contact your usual Grant Thornton adviser or Dominic Preston.