The UK economy is forecast to contract by around 10% this year, according to analysis from HM Treasury. Furthermore, the COVID-19 pandemic remains an ongoing threat to businesses. Given these factors, what are the priorities for finance leaders today?
Members of the UK Regional Advisory Panel for the Association of International Certified Professional Accountants addressed this question in a recent video conference.
- Economic recovery
The UK economy is continuing to recover from the shock of lockdown earlier this year. Finance leaders reported that confidence within their businesses is fairly high, however, not all sectors (such as leisure) were represented.
The finance leader for an infrastructure company said the government appeared to be using this period as a time to carry out activities that were not possible under normal circumstances and his business had a number of projects lined up. The finance leader for a software testing company said that her business was having a better year than expected, onboarding new clients and hiring additional staff and graduates.
Businesses understand that higher taxation may be needed over the medium to long term to cover the cost of the government support schemes launched during the pandemic. Nevertheless, they would welcome clarity around when any tax changes are likely to be introduced so that they can plan.
The finance leader for an energy company suggested that a corporate tax on windfall profits might be a good solution. He clarified that such a tax would need to be fair to all businesses — both those that used support schemes, such as the furlough scheme, and those that did not.
Generally, finance leaders felt launching a windfall tax is fine in principle, but this year doing so this would be poor timing and add extra pressure on businesses that are still recovering from the pandemic.
- Innovation and talent
While companies may expect to pay higher tax bills, it’s important that the government also incentivises them to invest in innovation and talent. Otherwise the UK could become less competitive and jobs could be lost offshore, especially since remote working potentially enables businesses to access a global talent pool. Further tax credits could be made available to businesses that invest heavily in R&D within the UK and with guarantees to employ UK staff.
Nervousness around Brexit is being heightened by the protracted nature of the EU-UK trade negotiations. With the end of the transition period now looming on 31 December, there's a very real prospect that the UK will exit the EU In a no-deal scenario.
The finance leader for an engineering group highlighted that state aid is an important issue for businesses that bid for government contracts. Meanwhile, talent is an important consideration for businesses that currently rely on skilled talent coming from within the EU. For businesses in the energy sector, Brexit creates uncertainty around carbon trading.
What’s next for finance?
The finance leaders on our call confirmed that COVID -19 has had a long-lasting impact on their finance functions. Functions have moved away from paper-based activities and they’re automating processes such as invoicing. Digital tools are also being used to share information.
Business partnering has been a challenge for some finance teams during the pandemic due to colleagues working from home. Finance teams have nevertheless been working with their business partners to manage challenges and analyse whether budgets are being used effectively. They have also undertaken forecasting and scenario planning, and pushed for more use of data analysis to support organisational decision-making.
Finance functions want to help their businesses achieve their long-term goals. So, they are re-evaluating their role to avoid being – as one finance leader put it – “data machines that produce reports for reports’ sake”. Increasingly, they are looking at how they can use their enterprise resource planning systems more effectively and provide management information in a simpler, more user-friendly format.
As with many other functions, the future of finance looks set to be a blend of working from home and using the office as a base to collaborate.