Marie Cooper has plans to grow her Midlands engineering business next year, making more of the pistons and pipework that planes, cars and oilfield machinery need.
That should have aligned well with the chancellor Rachel Reeves’s hopes to grow the UK economy, but after the first Labour budget since 2010, Cooper has been left looking at tens of thousands of pounds in extra taxes.
She estimated that her business, CBE+, will have to pay about £30,000 more in national insurance contributions (NICs) from next April after Reeves raised the levy on employers by 1.2 percentage points and lowered the threshold at which an employer has to pay on a worker’s salary from £9,100 a year to £5,000.
“We’re probably looking at two people that we are not going to recruit next year [because of the tax rises],” said Cooper, whose business in Chesterfield, Derbyshire, employs 85 people.
The Nics increase was the key revenue-raising measure in a budget that focused tax rises on businesses to fund a huge increase in state spending. Large parts of UK industry were left smarting on Wednesday after Reeves outlined £40bn in overall tax hikes.
Shevaun Haviland, the director general of the British Chambers of Commerce (BCC), a business lobby group, said it was “a tough budget for business to swallow”. Reeves promised the most “pro-business” government in history in the run up to July’s election.
“The increase in employer national insurance contributions will place a further cost burden on business,” Haviland said. “This, coupled with a 6.7% increase in the national living wage, means many firms will find it more challenging to invest and recruit in the short term.”
However, the BCC and the Federation of Small Businesses welcomed the doubling of the employment allowance from £5,000 to £10,500. This allows smaller businesses to reduce their national insurance bill. Reeves said the change meant 865,000 employers would not pay any national insurance at all next year if they employed the equivalent of four or fewer people full-time.
Rain Newton-Smith, the chief executive of the Confederation of British Industry, another business group, said that keeping corporation tax steady at 25% for the duration of the parliament was welcome, but the national insurance hike would “increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises”.
She added: “Only the private sector can provide the scale of investment required to deliver the government’s growth agenda.”
The Office for Budget Responsibility, the government’s fiscal watchdog, said falling profit margins caused by the budget would reduce business investment by £25bn, albeit with some uncertainty over the forecast.
The national living wage increase will benefit the lowest-paid workers, with over-21s receiving £12.21 an hour from April. But that and other policies – notably Labour’s employment rights bill – will add to costs for many businesses.
The British Retail Consortium (BRC) said retailers alone would pay an extra £2.3bn on Nics, £367m on the minimum wage and £140m on business rates. There is also up to £800m of extra costs from the employment rights bill, said Helen Dickinson, the chief executive of the BRC.
Roxane Marjoram, the co-owner with her husband of five pubs and a restaurant around Bury St Edmunds, Suffolk, including The One Bull, said hospitality businesses would be counting the costs of the rise in business rates payable on properties.
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Restaurants, bars, high-street shops and leisure venues were granted a 75% discount on business rates during the coronavirus pandemic. Reeves on Wednesday announced the discount would fall to 40% in April.
That was mitigated with a promise never to return rates to pre-pandemic levels, which was welcomed by UKHospitality, a lobby group for restaurants, pubs, hotels and indoor leisure. This will be paid for by higher rates for more valuable properties, such as warehouses, offices and factories.
“Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy,” said Kate Nicholls, the chief executive of UKHospitality. However, she said overall, 2025 would be “painful” for hospitality sector, with an increased annual tax bill of £3bn.
“It feels like another punch in the gut,” said Marjoram. “Next year feels pretty brutal. It is pure overhead. We have to find a way of finding that money.”
The rates bill for her business, Gusto Pronto, would rise from about £33,000 to £79,000 in April, she estimated – far outweighing a penny off a pint also announced by Reeves. “It’s hard to see how that increases growth,” Marjoram added.
Cooper said she recognised that improved public services and other investments such as research spending on aerospace and automotive were “good causes” and could eventually help businesses. However, in the short-term medium-sized businesses like hers will be paying more.
“We’ll just accept it,” she said, “but there are a lot of businesses that will want to reduce headcount off the back of it.”
