The Budget of Budgets!

Well, that was some wait, wasn’t it? But was the Budget worth waiting for? We knew it was going to be tough, but did you think it was going to be that tough, or not quite as bad as you thought? Hmmm!?

The usual media commentators are in universal agreement this, the morning after, that it was indeed a Budget of Budgets, introducing some ￡40 billion in tax hikes and, in some areas, spending cuts that will put pressure on the economy and business in particular.?

But did it reflect the government’s focus on economic growth, with policies intended to stabilise finances while addressing some of the concerns of small businesses? I think we need more detail before we can make a decision on that – but you can expect that in spades over the coming days as economists wade through the details.?

The chancellor retained her commitment to preserve the rates of income tax, employee national insurance and VAT. But a notable change is the increase in employers’ national insurance contributions (NICs) from 13.8% to 15%.?

There was also a reduction in the secondary threshold, which is the amount at which the employer starts paying NI on each employee, from ￡9,100 to ￡5,000. That’s some cut, and I wonder – being no economist – whether this is a sleight of hand manoeuvre if you look at it alongside the Employment Allowance increase.?

Altogether this will raise ￡25 billion annually but will significantly impact many businesses that will now face higher wage bills.?

The National Living Wage is also rising by 6.7% to ￡12.21 per hour in April 2025, boosting incomes for about three million workers, but again increasing costs for many businesses. Many consumer facing businesses have already taken a hit by absorbing price rises, how many will be able to do this again and I’ve no doubt many will be left with no choice but to put up prices – which means higher prices for me and you!

These rising taxes and wage increases, alongside incoming employment regulations, will strain businesses, particularly in sectors with high labour demands. So forget the tuppence h’appeny we got off the price of a pint, because prices will HAVE to go up for in F&B businesses.?

To offset some of these pressures, the employment allowance, which allows some smaller employers to reduce their NICs, has been raised from ￡5,000 to ￡10,500. The chancellor said that over? a million employers will not see their NICs bill rise as a result.?

Small businesses in retail, hospitality and leisure, where profits have been hit as consumers struggle with the cost of living, will ‘benefit’ from a 40% business rate relief on properties up to ￡110,000 – but don’t forget it’s currently at 75% so actually that’s a savage cut to bear. Other supportive measures include a very welcome (and frankly surprising) continued freeze on fuel duty, which will aid logistics and transport costs.??

The biggest change for those on low incomes was an increase in the national minimum wage (for 18 to 20-year-olds) of 16.3%, from ￡8.60 to ￡10 an hour, and an increase in the national living wage (for employees aged 21 and over) of 6.7%, from ￡11.44 to ￡12.21, from April 2025. This will lead to a pay rise for more than three million workers, but it’s a tough one for small businesses to swallow on the back of over 10% in April this year. These are eye watering increases for many, and will be insurmountable for some.?

There is some evidence that earlier minimum wage rises caused an increase in the number of zero-hours contracts in social care, as firms tried other ways to reduce wages. However, the new employment rights bill would limit the use of zero-hours contracts in this scenario.?

The Budget could have an indirect effect on pay packets though – and quite possibly ‘jobs’. The effect of the change to employer NICs will be greater in sectors with more low-paid workers, such as retail and hospitality, and this could see bosses take various routes to mitigation: not replacing staff, overtime bans, reduced hours, or possibly even reducing headcount.

Will we see a flurry of redundancies?And also, particularly for those sectors where there has to be healthy headcount to run efficiently, like hospitality or child nursery care, it may be employers will seek to only take on young workers under the age of 21 to avoid the top ‘band’ NLW? This is the rule of unintended consequences, but we will need to see over the next nine to 12 months to see how this plays out with businesses.??

Another indirect factor affecting incomes is the cost of getting to work. The fuel duty freeze will continue, but the bus fare cap will increase from ￡2 to ￡3. Although for us in Greater Manchester, Andy Burnham has said bus caps will remain at ￡2 for all of next year – which is a direct benefit of devolution for our City Region. At least for another year or so, young, low paid workers will have access to affordable public transport to get to work and back and that may help swell our pool of labour here.?

As always post-Budget, the really juicy stuff will out in the Sunday papers. So expect loads more of hidden nasties in the weekend papers.?

If you would like to find out what the changes mean for you and your business, why not attend our session next Tuesday where we have our finest policy wonks on hand to talk you through, ahem, the best and the worst of the Budget. More details and to register here: https://www.fsb.org.uk/event-calendar/the-budget-insights-for-small-businesses.html

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