As usual we’ve listened to and begun to analyse the 2024 Budget live, as the Chancellor made her speech.
We look forward to reading the detail, which can include important further information and clarification.
While we understand that money has to be found at this challenging time, with a need to invest in public services and address the cost of living challenges which lower and average earners in particular continue to experience, too much of the onus has been placed on businesses.
The increase in Employers’ National Insurance by 1.2 percentage points to 15% from April is a real concern and presents a number of challenges for businesses as well as for individuals. The effects of these are more far reaching than is immediately obvious.
Each employer will need to decide how they deal with that, depending on their own circumstances and affordability constraints. Many are working on tight margins already – and a move on Employers’ NI takes no account of an employers’ ability to pay.
While a rise won’t affect employee’s pay packets directly in the short term, there are indirect and longer term effects:
- Employers will, understandably, take the cost into account when considering any potential future pay awards, and be likely to moderate them downwards (and many will have to).
- This will also be a consideration in any decisions on whether or not to take on additional staff, whether to replace leavers, and indeed whether to let others go. It will also affect decisions on hours and over time.
- Employers may well be forced to put up prices, which while it doesn’t affect pay packets directly, does affect how far those packets will stretch.
- As well as the direct effect of price rises, such rises impact on inflation, which then feeds through to decisions on interest rates, again affecting the real value of pay.
As it that weren’t enough, additional costs to employers will also impact on investment decisions, and so on future growth, productivity and profitability – which affects both the taxes they pay to support public services and the money they have available to pay staff.
It’s good that the Chancellor has taken some steps to reduce the impact by reducing the threshold from £9,100 to £5,000 and increasing the employment allowance from £5k to £10,500. Apparently 865,000 businesses won’t pay Employers’ NI and more than 1m will pay the same or less than now. But the effect will still be significant.
The impacts highlighted above are exacerbated by the changes from April to the National Minimum Wage. The standard rate will rise by 6.7% to £12.21/hour from April 2025, with an even larger increase for 10 to 20-year-olds of 16.3% to £10/hour as part of phased harmonisation.
It was positive to hear of planned investment in Cumbria, with support for a green hydrogen project in Barrow and mention of investment in infrastructure in the county. And it does appear that other areas will benefit significantly more.
In terms of alcohol duty, the 1p reduction in price of a pint will be welcomed by the hospitality sector but this should be more than counteracted by other increases and in particular the effects of the National Minimum Wage and Employers’ NI.
We welcome the announcements of investment in schools and further education, including to SEN students, which are important to businesses for future workforce. Also support getting more people off benefits and into work. If employers have the jobs for them to go to.
The planned investment in sectors such as life sciences and automotive is positive but this excludes many, and we remain concern as to how they’re to be supported.
The promised clarity on the way forward with Corporation Tax, as called for by British Chambers of Commerce and others, is welcome, although not any tax increases that may be included within that. And we do welcome the initial extension of measures such as full expensing.
The protections for agriculture and business property in the Capital Gains Tax announcements, which should, for example, protect many farmers, is initially welcome and we need now to consider this in more detail. Similarly we were relieved to see maintenance of the lifetime limit for business asset disposal relief.
On business rates, we’ll be looking carefully at the apparent protections for retail, hospitality and leisure to support our high streets from 2026/27 and welcome the removal of the cliff edge of the removal of the current 75% discount to business rates, due to expire in April 2025.
This will be replaced by a discount of 40% up to a maximum discount of £110k. However this still means that many businesses will see their business rates nearly double (rather than quadruple).
