After weeks of ‘Will she, won’t she?’, Rachel Reeves finally revealed the reality of the autumn budget. Only now can we really start to unpick what this means for businesses and the role that boards can play in navigating change and steadying the ship.

The headlines

This year’s budget was delivered against a backdrop of weak economic growth and rising national debt. While many of the announcements, including tax hikes, came as no surprise, the form in which they came will have far reaching impacts for every business.

In short—the budget will raise taxes by £26bn across several measures including changes to corporation tax, mileage-base charges for electric vehicles and the so-called ‘mansion tax’.

Changes in the minimum wage and pension salary-sacrifice schemes will signal increased employee costs for many businesses. The statutory minimum wage rise will translate into higher payroll costs for companies with lower-paid staff. Combined with more expensive national insurance and pension contributions, this could compress margins, especially for labour-intensive sectors.

The budget also includes measures to increase taxation on dividends, and tightening of some pension-tax advantages. For businesses financed or structured through dividends or investment returns, this may reduce attractiveness of dividend-heavy structures or prompt rethinking of compensation/ownership models.

Despite these headline announcements, there seemed little real commitment to boosting the economy. The day after the budget, I attended an event in London where non-executive directors, chairs and CEOs of both listed and private equity backed companies were weighing up the announcement. There was unanimity around the table that the measures do little to nothing for economic growth. This is despite Reeves breaking a longstanding Labour promise. Senior business leaders’ first assessment seems to be that the budget is not stimulating enough, meaning people will feel let down twice.

Board backing

While this is just a small snapshot of business sentiment and what leaders must now wade through, how they react (and reset) is crucial. This is where boards can play a key role, working with management teams to ensure the right measures are in place to navigate the months and years ahead.

There will be challenges and opportunities but working through different scenarios to understand implications of what the budget might bring is the first logical step. This could cover ‘rate rises + wage pressure + pension cost’ combinations to assess viability, margins, pricing and investment plans.

In addition to testing different business models, there are a number of other key governance-level actions which boards can support. These include:

• Reviewing existing capital investments and any acquisition plans in light of the new fiscal reality and reassessing the risks and returns. Evaluating the physical footprint of the business could also be wise for companies with a large real estate exposure.

• Reassessing compensation plans and workforce strategy in response to higher employment costs. This includes a review of staffing, compensation packages and long-term workforce planning which could lead to necessary changes in benefits structures, pay bands and even headcount.

• Working with management to seek out new opportunities. By scanning the environment and determining any opportunities that the budget has opened, the company’s competitive position could be enhanced.

• Calibrating plans to ensure strategic alignment between the board and executive team is maintained. Ensuring a robust and realistic strategy in light of the budget is vital to maintain business growth and success. Operational and strategy direction must continue to be aligned.

• Communicating the impact with stakeholders internally and externally. Be transparent about what the budget means for the company and its stakeholders, including employees, customers and suppliers. Being open about how the company intends to absorb or pass on any increased higher costs, for example, will help maintain investor confidence and trust.

Whatever the impact on the business, boards and management must work together to determine the best course of action.

While the day-to-day operational initiative will come from management, boards have a key role to play in ensuring that all possible angles are taken into consideration and that there is continuous alignment and communication between the board, management and all stakeholders.

Once the impact of the autumn budget has been fully weighed up, management may want to continue with some investments and/or acquisitions that are now considered more risky. Or they may want to delay investments while the dust settles, which could have a detrimental impact on the future of the business.

Boards have a mandate to ensure long-term value creation, and the re-calibration of plans needs to take this into consideration against the budget backdrop. If earnings are to be sacrificed in the short term, boards need to manage shareholder and investor expectations and provide management the air cover to absorb the impacts.

Chairs need to be clear what the company can deliver under any new circumstances and help the CEO explain any changes—or resetting of expectations—very clearly to shareholders, investors and other stakeholders.

Dr Filipe Morais is a lecturer in governance at Henley Business School.