SearchBudget perspective - 'a difficult day for employers'
Commenting on today’s Budget, HURST tax partner Adrian Young said:
“Today’s Budget announcement from Rachel Reeves will likely hit many businesses hard.
The fact that they will bear the brunt of the new tax-raising measures is potentially damaging. It’s worth remembering that employment is perhaps the most fundamental link in the chain that drives prosperity.
“The creation of employment is central to the economy, and it is often forgotten that privately-owned businesses are responsible for something in the region of 60 per cent of all employment in the UK.
To hit these businesses with £25bn of increased employers’ national insurance contributions per year by the end of the forecast period could lead to two unintended, linked and unpleasant consequences.
The first is that privately-owned businesses will likely create fewer jobs. The second is that, in extremis, they will lay workers off.
The national insurance increase is therefore in my view misguided, because employment produces a very strong double positive for the Treasury. It reduces reliance on welfare and contributes hugely to the tax coffers.
What is more, given that around three-quarters of UK private businesses are in the services sector, by far their single biggest cost is employment.
“So, the national insurance contribution increase will go straight to the bottom line, meaning that returns for entrepreneurs, the people who ultimately create the jobs, will be diminished, potentially along with their appetite for investment. The unpalatable alternative is that these costs will be passed around the economy in the form of price inflation and job losses.
Another potentially problematic set of measures confirmed today were the large increases in national minimum wage levels. The headline rate for people aged 21 and over is increasing by 6.7 per cent to £12.21 per hour, while the rate for 18 to 20-year-olds is increasing by a full 16 per cent, from £8.60 to £10. The apprentice rate is increasing by even more – an 18 per cent raise from £6.40 to £7.55. Increases to the national minimum wage are inflationary throughout a business’s salary structure, as employers have to react to them more generally around the workforce.
While increases to the national minimum wage should be seen in a positive light from a societal perspective, let’s not forget that it is funded entirely by employers. When combined with the increase in employers’ national insurance announced today, they are looking at a significant increase in costs.
The increases in capital gains tax rate from 20 per cent to 24 per cent for the main rate, and 10 per cent to 18 per cent for the lower rate are, perhaps, slightly lower than anticipated, and will be met with a degree of relief. However, it would be easy for business owners to start to question Labour’s friendliness towards business. The inevitable challenge is that private business appears to be seen as a source of quick-fix tax revenues which can be shaken down at any time and without recourse or complaint.
Proposed changes to inheritance tax regarding pensions and private company shareholding, due in 2026, will cause concern to many, but particularly family businesses, and will require careful thought in the months to come.
People understand the need for tax-raising measures and the critical services they fund. However, the truism remains that we cannot tax our way out of economic difficulties and, instead, there has to be a focus on growth and productivity. From a business perspective, there were some glimmers of hope, as existing corporation tax rates and reliefs, for example for research and development tax credits and investment allowances, were left intact. However, whether that is sufficient to get local business leaders on side with the new Labour administration remains to be seen.”
If you have any questions or would like to explore the topics covered in the article, please don't hesitate to contact Adrian Young at adrian.young@hurst.co.uk or give us a call at 0161 477 2474.