Rachel Reeves, the UK Shadow Chancellor, floated a major surprise recently when she released tax and spending plans. She even has some wiggle room to act on the increasingly urgent pleas of businesses. This is at odds with the government’s recent introduction of a £25 billion increase in employer national insurance in the last Budget. This unexpected decision surprised many firms and left them scrambling to adapt.
As businesses grapple with rising costs, they now face another challenge: an increase in their rateable values. This change has alarmed a number of affected businesses. They are concerned about the sustainability of their operations since the Covid-era 40% discount is scheduled to phase out in April.
The outlook is most grim for high street retail and hospitality businesses. Their local business rates will be based on a much lower percentage of the rateable value of their premises. Despite such hope, this new, largely lower tax rate was actually significantly less generous than expected, raising fears about its longer-term effects.
Business leaders have voiced their frustrations, with one prominent sentiment echoing through various sectors: “Where is the growth?” Many are concerned that the current fiscal policies are hurting rather than helping the very businesses they aim to support.
As a member of the business community, Steve Rigby shared his fears over the fiscal battlefield.
“We just hope it isn’t too catastrophic for business and we can get on with it.” – Steve Rigby
Given the above challenges, Reeves’ proposals go in the right direction by providing incentives to invest. The Enterprise Investment Scheme and Venture Capital Trusts offer significant tax breaks. These incentives are what draw investors who are hungry to support young companies. These programs serve to make placing bets on companies that have outgrown their startup stage easier.
Though the government just announced an 8.5% increase for young people aged 18-20, who are paid the national living wage. This decision has most definitely set tongues wagging. This jump comes after an unprecedented 16.3% increase for the 0-4 age group last year. While aimed at improving wages for younger workers, it places additional financial pressure on businesses already struggling with increased taxation and operational costs.
Here’s what one senior exec from a FTSE 100 company told us about the long-term potential of some of these fiscal moves.
“They are hurting the very people they are trying to help and it will mean fewer jobs, fewer hours, fewer premises, lower growth.” – FTSE 100 boss
As the phase-out of the Covid-era discount approaches, firms are left wondering how they will adapt to these changes while maintaining profitability. The combination of increased national insurance contributions, rising rateable values, and wage hikes creates a challenging environment for businesses that are still recovering from the pandemic’s economic impact.