Business | Knowledge
BUDGET BURDENS THREATEN TO PUSH BUSINESSES TO THE BRINK
Chancellor of the Exchequer, Rachel Reeves
BACK IN OCTOBER, RACHEL REEVES UNVEILED HER FIRST BUDGET SINCE BECOMING CHANCELLOR, WHERE SHE OUTLINED THE GOVERNMENT’S PLANS FOR PUBLIC
SPENDING AND TAXATION. BUT WHAT DOES IT MEAN FOR SMALL AND MEDIUM-SIZED BUSINESSES?
SIMON KING REPORTS.
In the first Budget since the spring, the Chancellor announced various measures regarding Employers’ National Insurance contributions (NICs), Capital Gains Tax, and Corporation Tax. She also officially confirmed changes to the National Minimum Wage and other public spending commitments that were revealed on October 30. Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), said: “The Chancellor had difficult choices to make to deliver stability for the economy and public finances. A more balanced approach to our fiscal rules, which prioritises capital investment, should help to unlock private sector investment in our infrastructure and net zero transition over the long term. “This is a tough Budget for business. While the Corporation
Tax Roadmap will help create much-needed stability, the hike in National Insurance Contributions – alongside other increases to the employer cost base – will increase the burden on business, hit the ability to invest, and ultimately make it more expensive to hire people or give pay rises.” Rain said only the private sector can provide the scale of
investment required to deliver the government’s growth agenda. “To achieve this shared mission of growing our economy sustainably, it’s vital that the government doubles down on its partnership with business to unlock the investment that is needed to drive opportunity around the UK,” she added. New tax burdens introduced in the latest budget could tip
even more businesses into financial distress, an insolvency expert from Shakespeare Martineau has warned. Andy Taylor, partner and head of restructuring at the
law firm, said: “Businesses in high-labour and supply chain-intensive sectors, in particular, could struggle to absorb these costs.”
24 | December 2024/January 2025
EMPLOYMENT ALLOWANCE FOR SMALL BUSINESSES The Federation of Small Businesses (FSB) welcomed the record increase in the employment allowance for small businesses, and the protection for small businesses in England from inflationary business rate hikes; following its extensive campaigning. The Employment Allowance has more than doubled, from £5,000 to £10,500, which will shield the smallest employers from the employer National Insurance Contributions (NICs) rise. FSB has warned, however, that small and medium-sized enterprise (SME) employers with more staff will struggle with the hike in employment costs, including through the changes to employer NICs. At the same time the Government is planning to introduce a raft of new employment laws. Tina McKenzie, FSB’s policy chair, said: “Against a tough backdrop, the Budget shows a clear direction in business policy now, for the whole of this Parliament to target support at small businesses, rather than big corporates.”
EMPLOYER’S NATIONAL INSURANCE The changes to Employers’ National Insurance represent a straightforward increase in business costs and take no account of whether a business is profitable or not. Dr Roger Barker, director of policy at the Institute of Directors, said: “At a time when business confidence is low, hiring plans have already been hit by the Government’s employment rights reforms, and the minimum wage is set to rise by more than inflation, this will hit employment prospects and earnings. “The effects of higher National Insurance costs will hit profits in the near term before being passed on in lower wages and lower employment. “Although the increase in the employment allowance will
alleviate the hit for the smallest enterprises, there is no doubt that this increase in employers’ National Insurance is a major blow for most businesses.
EMPLOYERS’ NATIONAL INSURANCE CONTRIBUTIONS One of the key announcements relevant to businesses in the Budget was on NICs. The current rate at which employers pay NICs on workers’ earnings will rise from 13.8% to 15%, while the threshold at which payments start will fall to £5,000 from £9,100. Manufacturers and businesses more widely have argued this could make it more difficult to hire new staff and create jobs, while our initial calculations suggest this could be costly to the manufacturing sector. Stephen Phipson CBE, Make UK’s chief executive, said: “This Budget was always going to involve tough choices for business as the Chancellor grapples with the state of the nation’s finances while, at the same time, improving the foundations of the economy.”
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