Once again, the intention to become an innovation powerhouse was prominent in this year’s budget. It’s great to see the recognition that innovation is important despite fiscal tightening so, from an R&D perspective, the message was promising. The Chancellor expressed that the Government wants to make the UK the best place in the world for companies to innovate and his decision to consult the industry on R&D schemes is a wise one and something we have recommended to HMRC directly.
We also fully support the Government’s commitment to an investment led recovery focusing on the green economy. The Government is unleashing a huge amount of cash to reboot the economy, so it makes perfect sense to use the opportunity to channel the economy in a forward-thinking direction. The future is sustainable, and we should adapt to the demands of the modern economy.
The Government is also finally looking beyond infrastructure to address regional economic divisions. It’s no secret that the UK economy is unbalanced. Most European countries have a few strong cities, but other regions are far behind London due to a comparative lack of investment. We need to change how our economy functions by bringing jobs to people, not people to jobs. At the moment, there’s a big brain drain to London.
Audit reforms: A genuine challenge to the Old Guard?
People are rightly concerned about the oligopoly of the Big Four. The timing of this announcement is significant because, as the economic environment remains hostile, we must have robust auditing rules to protect investors and jobs from insolvencies.
How much of an impact these reforms will have remains to be seen, but the strategic break up of audit is part of an ongoing challenge to the old guard.
The Big Four have enjoyed near-total dominance in the sector since the early 2000s, with the vast majority of the FTSE 250 still serviced by these companies across auditing and consulting. But while reforms should improve the audit landscape, these firms already face growing competition on the consultancy side of their businesses.
The ‘Big Four’ offer a broad range of services and often support a business in several ways. But while they may dominate in terms of reach, the same cannot always be said of scope. Simply put, they can often act as ‘Jacks-of-all-trades’ as opposed to masters of one.
Increasingly, firms need specialist services that can navigate the complexities of their business, providing opportunities for smaller firms who can offer innovative solutions faster because they have a close-knit expert team that knows the field inside out.
The Big Four are bolstering their own specialist teams, but these are relatively new and cannot match the focused expertise of a dedicated consultancy, who are better equipped to take a deeper dive into technical areas of business, such as R&D tax credits.
Much like we saw in banking, we expect smaller, more agile firms to increasingly challenge the long-held view that these household names are superior and begin chipping away at market share to the benefit of all. So, whether these reforms have the desired impact or not, the dominance of the Big Four is already being checked by specialist consultancies, which can only be a good thing for competition.