A New Era of Economic Reform
Chancellor Rachel Reeves made it clear: this budget represents a call for change and a focus on “national renewal.” With a commitment to putting “more pounds in people’s pockets” and rebuilding economic stability, the Labour government aims to drive growth by investing heavily across sectors.
But, what does it all mean for UK Businesses?
Key Budget Highlights for SMEs
1. National Insurance Hikes for Employers
- What’s Changing: Employers’ national insurance contributions will rise from 13.8% to 15% starting April 2025. Additionally, the secondary threshold at which employers start paying these contributions will be lowered from ￡9,100 to ￡5,000.
- Impact: This increase is expected to generate ￡25bn annually by the end of the forecast period, making it the biggest revenue-raising measure in the budget. For SMEs, this translates into higher employment costs, which could have an impact on hiring plans. If you’re planning to bring on new talent, these additional costs might influence how you allocate budgets for staffing and growth in the coming years.
- Our Take: While this measure helps fund critical public services, smaller businesses must prepare. Optimising workforce productivity and enhancing employee retention could help mitigate the impact of rising NI contributions.
2. Income Tax and National Insurance Threshold Adjustments
- What’s Changing: From 2028-29, personal tax thresholds for income tax and national insurance will align with inflation. This move aims to avoid dragging individuals into higher tax brackets, maintaining tax neutrality for employees.
- Impact: While not immediate, this aligns with the government’s goal of avoiding new taxes on working people. However, it’s essential for businesses to stay aware of these adjustments to anticipate potential changes in employee take-home pay and cost of living, which can influence employee expectations around wages.
- Our Take: While inflation-adjusted tax thresholds don’t kick in until 2028-29, planning ahead is key. For employees, the adjustments may ease concerns over creeping into higher tax brackets. For employers, however, there’s a ripple effect to consider: stabilising take-home pay is good for employee morale and retention, but it may also raise expectations around annual salary reviews and cost-of-living adjustments. Preparing a proactive strategy to address these expectations can help keep your team engaged and aligned with your financial planning.
3. Increase in the National Living Wage
- What’s Changing: The national living wage will increase by 6.7%, moving to ￡12.21 per hour, which equates to an extra ￡1,400 annually for a full-time worker.
- Impact: For SMEs, especially those in sectors with high staffing requirements, such as retail and hospitality, this wage increase could significantly affect operational costs. While higher wages are likely to boost employee morale and retention, the increase might require recalculating budgets to account for payroll adjustments.
- Our Take: Ensure that compensation adjustments fit within your broader budget strategy. While higher wages can attract top talent, businesses might look at boosting efficiency or reducing costs elsewhere to maintain profitability.
4. Business Rate Relief and Employment Allowance Boost
- What’s Changing: From 2026-27, retail, hospitality, and leisure businesses will see lower business rates permanently, with a 40% relief on rates capped at ￡110,000 until then. The employment allowance, designed to ease national insurance burdens for smaller businesses, will increase from ￡5,000 to ￡10,500.
- Impact: This increase in employment allowance can help SMEs offset rising employer national insurance costs, providing a cushion for smaller firms. For those in retail, hospitality, and leisure, lower business rates mean less overhead—an added advantage as businesses scale and potentially hire more.
- Our Take: These allowances and reliefs can make a difference in profitability. By freeing up funds, SMEs can reinvest in hiring, training, and expanding their market footprint. Consider how these changes align with your growth objectives and recruitment plans.
- What’s Changing: Carried interest taxes will rise from 28% to 32%, mainly impacting private equity, while the oil profits levy will see a hike to 38%.
- Impact: While these changes may not directly affect every SME, the raised oil profits levy could contribute to energy cost increases, potentially raising operational expenses.
- Our Take: Staying agile with cost management and seeking energy efficiency where possible could buffer against these broader economic shifts.
