By now, the dust is settling on the Chancellor’s 2023 Autumn Statement, and I am sure you have been bombarded with information about it. So, instead of rehashing what was said, I want to focus on the consequences of these changes. After all, what truly matters is how these changes will affect businesses. Here is my take on what the Autumn Budget actually means for your business and mine.
1. Tax cut for NIC contributions.
One of the key highlights of the Autumn Budget is a tax cut for National Insurance Contributions (NIC). In relative terms, this reduction will benefit lower earners more than higher earners. For example, someone earning £30k annually will pay £29 less in tax per month.
While this is undoubtedly a positive development for employees, my reaction is Yawn! It’s too small to get that excited about. Plus, some might even argue that redirecting that cash towards critical areas like infrastructure or essential public services would have been a more impactful choice. I’m thinking of building Schools and Hospitals with RAAC concrete issues or recruiting student nurses, doctors, policemen or teachers.
Additionally, why wasn’t there a cut for the employer’s costs? To me, this raises questions about the broader implications for businesses.
2. Changes to the minimum wage.
The Autumn Budget also introduces changes to the minimum wage, which will result in additional costs for businesses employing workers at or near the minimum wage. For example, a full-time NMW employee working 40 hours per week will incur an extra £2,478 per year in wage, NIC, and pension expenses for the employer. My reaction? Well, it’s complicated!
When this legislation first came into effect in 1998, I was all in favour, but setting the minimum wage too high would cause problems for many businesses. Particularly for those in sectors like social care, childcare, hospitality, charities, retail, and small businesses. It may be difficult for these businesses to pass on these added costs to consumers, potentially jeopardising their sustainability.
What’s strange is that even the body that recommends what NMW to set identified this issue, yet this change has been made.
3. Economic landscape, Inflation, and Interest Rates.
The economic landscape in the U.K. remains shaky and uncertain, with GDP growth at a mere 0.5% in the first nine months of 2023, significantly lower than the 2.29% recorded in 2019. The year 2023 has also seen a 20% increase in corporate liquidations compared to the previous year, indicating tough times for businesses.
To cope with rising wage costs, businesses should consider raising their prices in anticipation of this. While it will contribute to sustained inflation, rather than lowering it, and putting up prices in the current landscape is easier said than done, this is one of the limited options for businesses. Consequently, the prospect of economic growth appears challenging in the current scenario.
4. Potential impact on economic growth.
While the budget makes the tax allowance on capital expenditure a permanent feature, its potential impact on economic growth is debatable. Why? Because most companies don’t spend on equipment because of the tax relief; it’s a nice to have.
Although this change might encourage some businesses to increase their capital spending, it’s unlikely that an additional £29 per month in an employee’s pay packet will lead to a surge in consumer spending! So, actually, this budget doesn’t appear to be a substantial catalyst for economic growth.
What are you going to do now?
In the end, like always, the onus lies with each business owner or manager. Business success and, conversely, failure, are choices that rest on your shoulders. So, what’s the plan?
If you have no idea, don’t worry too much – it was a rhetorical question!
The best thing you can do right now is to update your business plan, factoring in the impact of changes like the minimum wage and other cost increases. Why? Because you need to be sure that your business is primed to generate a profit and maintain sustainable growth. It really is that simple. If you want your business to still be here this time next year, then it needs to be making a profit during these tough times.
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