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Businesses have warned that the tax increases announced in the Budget will be nothing short of “painful” and will leave employers with less cash to raise wages and create new jobs.
Chancellor of the Exchequer Rachel Reeves has decided that businesses will bear the brunt of a total tax increase of £40bn, through an increase in National Insurance rates and a reduction in the threshold at which employers start paying.
This means more than half of the tax increase in the Budget will be paid by employers, and the amount they pay into National Insurance on workers' wages will soar, generating £25bn a year.
Mr Reeves said raising National Insurance would be “difficult” but the right thing to do to fund public services.
Although there have been some exemptions and relief measures for small businesses, increases to National Insurance will have a significant cost impact on businesses.
This comes as businesses face higher minimum wages, higher operating rates, and the cost of adapting to new worker rights under new legislation. That's true.
Businesses have warned that these additional costs could ultimately impact on the government's aim to grow the UK economy.
But Mr Reeves said investment was “the only way” to drive growth, warning there were “no shortcuts”.
“We're asking companies to contribute more,” Reeves said. “We know that this measure will have an impact beyond businesses.”
Businesses come in all shapes and sizes, so the choices the Chancellor makes in the Budget will have different impacts. While large multinational companies are likely to be able to absorb the additional costs, smaller independent companies may be hit even harder.
What are the higher costs facing businesses?
National Insurance: The rate employers pay in contributions will rise from 13.8% to 15% on workers' earnings above £175 from April. The threshold at which employers start paying tax on each employee's salary will be reduced from £9,100 to £5,000 a year. However, the Chancellor said Employer Allowance – the amount employers can claim back from their National Insurance bill – would be extended from £5,000 to £10,500. Minimum wage: The minimum wage for over-21s, officially known as the National Living Wage, will rise from £11.44 to £12.21 from April 2025. The minimum wage for 18 to 20 year olds will rise from £8.60 to £10. Apprentices' hourly rates jump from £6.40 to £7.55. Business rates: The current 75% rate discount, which expires in April 2025, will be replaced by a 40% discount up to £110,000. Plans to improve worker rights could cost businesses up to £5bn a year to implement, according to the government's own analysis. The new measures will have a disproportionate impact on small and medium-sized businesses.
'pain'
There are concerns that tax increases will ultimately hurt workers and consumers.
In some cases, companies may be able to pass on the increased costs they face through higher prices, but this may limit wage increases for employees as employers seek to save. If companies make less profits and people receive less pay, other tax revenues could also take a hit.
The Office for Budget Responsibility, the UK's official economic forecasting body, said it assumed “most” of the increased national insurance costs would be passed on from employers to workers and consumers through lower wages and higher prices. .
A major business group said the budget was a “tough” budget for businesses, noting that the National Insurance hike was hitting businesses' ability to invest.
“At first glance, the government's first budget proposal contains little other than short-term pain,” said Roger Barker, the board's policy director.
Layne Newton-Smith, chief executive of the CBI, which claims to represent 170,000 companies, said the burden on businesses “makes it more expensive to hire people and give them raises.”
Kate Nicholls, chief executive of UKHospitality, which represents pubs, restaurants and cafes across the country, added that the tax increase would be a “brake on growth” for the UK.
“Companies with paper-thin profit margins are already facing significant increases in labor costs, with reduced employment and working hours, reduced investment, and increased prices as well as business viability. “We are also seeing the damage done to the country,” she added.
The government has pledged to be both “pro-business” and “pro-worker” in policy-making, and Mr Reeves confirmed there would be no rise in income tax, national insurance for employees or value added tax.
Energy billing for business
Callum Thompson is a director at Business Energy Claims, a Newcastle-based small law firm that helps businesses recover losses caused by the misselling of energy contracts. He estimated that the National Insurance increases announced in the Budget would cost his company between £18,000 and £19,000.
Mr Thompson, who employs 30 people, is planning to open a new office near Liverpool, but said he would now review his “aggressive plans” to expand the workforce and hire more people.
Kate Lester, founder and president of Diamond Logistics in Guildford, agreed that higher costs “make us think twice about hiring additional staff.”
She added that the tax increase would add “tens of thousands of dollars” to her wage bill, and while she doesn't oppose raising the minimum wage, she said it would be another cost increase for her business.
But Pip Murray, owner of natural nut butter company Pip & Nut, said the Budget announcement was a “light relief”, adding that the changes were “quite modest and sensible”.
She said the 1.2% National Insurance contribution was not a “significant cost” for the 30-employee company.
“It could have been much worse,” she added.
pip murray
While the Chancellor will inflict the pain of tax increases on businesses, he has proposed some relief for small businesses by increasing the amount they can claim back from their National Insurance claims.
But the Prime Minister also announced that the 75% reduction in business rates imposed on most non-residential properties such as shops, offices, pubs and factories, which was due to expire in April, will be replaced by a 40% discount for retailers. He also said that it would be. Next year will see the birth of hospitality and leisure companies.
The average shop's operating fees will jump from £3,589 to £8,613 next April, while pub costs will rise from £3,938 to £9,451. According to commercial property intelligence firm Altus Group, average restaurant operating fees will rise from £5,051 to £12,122.
Additional reporting by Josh McMinn.
