In the Chancellor’s opening remarks to today’s budget, she took pride in highlighting that last year she “raised taxes on business and the wealthiest”. More than anything else in today’s Budget announcement, this line shows the remarkable lack of understanding or empathy with the reality facing most UK businesses, charities and not for profits prevalent in the thinking of Government and the Treasury.
The budget today is in many ways a relief after weeks of speculation and uncertainty resulting from the Government’s pitch rolling of proposed tax raises but contained little that will be actively welcomed by business. She stopped short of raising National Insurance again, but this offers little respite for organisations reliant on recruiting and retaining staff to support growth, still struggling to absorb last year’s increases. This will continue to most affect sectors providing entry level and lower paid employment in the retail, hospitality and social care sectors where tight margins and a shrinking workforce make it difficult to recruit and retain talent.
For many smaller business owners, freezes in tax thresholds and increasing tax rates on dividends will hit particularly hard and will see many early-stage businesses become unviable for entrepreneurs already struggling to takes a living wage from their fledgling businesses. The budget highlights another paradox in the Government’s thinking on small businesses. Their own ‘Plan for Small and Medium Sized Businesses’ published this year recognised that “accelerating SME growth by just 1 percentage point a year could deliver £320 billion to the UK economy by 2030”.
However, the few positive measures announced for business today focused on high-growth startup and scale-up businesses. It would seem a far easier win to implement measures that would deliver 1% growth through the five million firms already established in the UK economy but instead the Government chooses to suppress this growth and maintain pressure on the finances of small businesses whilst relying on a smaller number of high-risk bets to deliver.
The milage Tax on electric vehicles from April 2028 will be unhelpful to businesses that have invested in modern more environmentally friendly vehicles and is likely to slow uptake by firms planning to replace their existing fleet early. Finally, changes to National Insurance on salary sacrificed pensions contributions will make it harder for many businesses to provide an attractive package to recruit and retain staff. We expect this will further restrict both SME growth and long-term saving for retirement.
Whilst none of this makes for great news, we see opportunities for organisations that develop a clear financial resilience plan, with focus on dynamic forecasts, thoughtful tax strategy and sound risk management to succeed in adverse market conditions. If you are looking at how your organisation will respond to these challenges over the next year we would love to hear from you.
