What Does The Budget Mean For Brands and Businesses? Adland Responds

Despite nervousness around what the British autumn budget would bring after highly negative overtones relayed by the newly installed government, this year advertising spend in the UK is forecast to surpass £40 billion for the first time. That is coincidentally the same amount the UK Government aims to generate annually through its first autumn budget.

While there wasn’t a great deal within chancellor Rachel Reeve’s budget specifically aimed at the creative sectors, there was plenty for the advertising industry to consider - from the impact on employment costs, to how it might shore up an economy that is now expected to outperform previous predictions and grow by 2 per cent in 2025.

And yesterday's budget was followed today by the latest Warc/Advertising Association report which finds that ad spend reached £19.6 billion during the first half of the year - up by 13.5 per cent, largely driven by digital, while the second half is expected to grow even faster, reaching £40.5 billion for the whole year. 2025 is forecast to reach £43.1 billion too, but there's no doubt Reeve's budget is vital to shoring up business confidence to secure that momentum.

Putting that challenge to the test, Labour will raise several taxes from April including National Insurance contributions for employers by 15 per cent however an increase in employment allowance from £5,000 to £10,000 means 65,000 businesses won't pay any national insurance at all next year. Elsewhere employers will also be impacted by the increase in the minimum wage by 6.7 per cent to £12.21 an hour for people aged 21 and over. To support these increases, business rates relief will fall from the current 75 per cent rate to 45 per cent for retail, leisure, and hospitality businesses.

“The new government repeated their aim today in the Budget to create the conditions for growth. It is important to recognise the vital role that advertising plays in supporting this, by helping businesses of all sizes to compete, innovate and support jobs,” says Stephen Woodford, chief executive of the Advertising Association, who also cited the steps Reeves promised to support the transformation of the Apprenticeship Levy into a Growth and Skills Levy with the investment of £40 million.

“Much greater flexibility is something our sector and many others have long called for and we look forward to working with the Government to create more effective solutions for businesses looking to develop new talent in our industry,” Woodford adds.

Government departments have not escaped cuts either, having also been ordered to reduce their budgets by 2 per cent next year by using more technology and joining up governmental services to be more efficient. What impact this might have on communications and advertising budgets is yet to be seen.

Creative Salon understands that the Information Commissioner’s Office (ICO), which oversees the delivery of public announcements, doesn’t anticipate any immediate impact to its funding and has yet to budget for the next financial year.

Revolt's chief executive Richard Arscott believes that the budget is a mixed bag with challenges and opportunities for the industry. He feels that smaller agencies with less flexibility to cope with the new corporate taxes will be impacted as well as by a tightening of client budgets from smaller businesses. Government incentives tied to sustainability and digital innovation could be routes for growth, however.

"Sustainability funding within the budget, allied with upcoming regulation will deliberately continue to encourage clients towards advertising strategies that look to drive corporate and brand reputation with campaigns that highlight responsible sourcing, carbon reduction, and social impact. By showcasing these efforts, brands can resonate with consumers but also meet increasingly stringent ESG standards," Arscott says.

Chris Combemale, chief executive of the Data and Marketing Association (DMA UK), has a positive response to the Budget overall, admitting to be perhaps a little surprised after the media negativity in the lead-up.

“The government has said its investment will enable 2 per cent productivity gains next year, and we expect the recently announced Digital Use and Access Bill, which we are fully supportive of, will help achieve this by using data to enable more efficient public services while at the same time promoting data-driven growth in the private sector,” says Combemale.

He welcomes plans to invest in the new body Skills England to drive growth and tackle skills shortages while supporting the creative industries as well as a commitment to research and development investment despite wider cuts.

“As the economy recovers and if the R&D investments and companies' own investments begin to lead to growth within much better trading conditions, that is of course very good for our industry,” he explains.

The clarity around spending plans will now hopefully lift any uncertainty in marketing spend that characterised recent months, impacting agency productivity and creating nervous tension across the sector in the lead-up to the Golden Quarter, despite strong predictions of marketing spend growth.

IAB UK has also just released its Digital Adspend update for the first half of the year, revealing that the digital advertising market grew by 16 per cent, mainly through online video.

The fact that UK GDP grew by a far more conservative 0.5% during the same period indicates that marketers have continued to prioritise advertising despite the uncertain economy,” says Christie Dennehy-Neil, head of policy and regulatory affairs for IAB UK. “While the tax rises announced today will increase pressure on business, the OBR is now predicting stronger economic growth in 2024 and 2025 and we expect advertisers’ confidence to remain buoyant, with social video in particular a key driver of ad market growth.”

Meanwhile, VCCP Media CEO James Shoreland takes a pragmatic business viewpoint on the tax rises and their impact.

"High-performing companies recognise that any setback is a chance to step up.  Make no mistake, a £25 billion hike in taxes is a setback for agencies and advertisers alike," he says. "This budget, along with other recent news across our industry, makes me stand behind my comments in Creative Salon in May, that 2024 is a year of consolidation for the larger media agencies."

He continues: "At VCCP, we are an agency built for challenging times. It’s what our network model is built for. We are the challenger agency for challenger brands, with a challenger attitude. Quality, not quantity, will be the focus of media spend and media strategy. Creative, integrated work, works. A lot of the current agency models prohibit that integration and limit the potential of both brands and talent. The budget necessitates a change. Time to step up, roll our sleeves up and get on with it."

Speaking for his members, IPA president Paul Bainsfair highlights the government’s commitment to economic growth, stressing his belief that agencies “are great growth engines” before caveating that they are “dominated by their payrolls” and will be impacted by the change to National Insurance contributions.

“That represents a very significant increase in the cost base of agencies and threatens their ability to facilitate the growth the Government says it is prioritising,” he warns. “More broadly, agencies stand or fall on their talent. Moreover, shifts in employee rights will significantly affect how agencies recruit, retain, and nurture the creative minds that are essential to our sector’s success.”

Bainsfair is also concerned by the announcement of increases to Capital Gains Tax and tax paid on carried interest, claiming that it may lead to a reduction in investment within agencies by individuals or financial sponsors.  

“We just have to hope that this short-term pain will, as the chancellor suggested, ultimately unlock vital long-term growth for the UK economy,” he concludes cautiously.

And he's right to be cautious. Despite the confidence Labour has in this strategy, high risks for big rewards are still a gamble on a major scale. But at the very least, Reeves' budget didn't break the British economy within hours.