It took just four months. In that time, the UK electorate swept the first Labour government for fourteen years into power, and the US electorate gave a massive mandate to a former President and returned him to the centre of the world stage. Two huge democratic exercises with extraordinarily different outcomes; both administrations promising ‘growth’ but proposing diametrically opposed policies to deliver it. The contrast could not be greater. Whilst Donald Trump has promised to cut taxes and to halve energy bills in the US, the Labour Government in the UK has just delivered its first Budget, which looks set to increase taxes and costs by an astronomical quarter of a Trillion pounds over the Parliament. An almost unimaginable amount of money to transfer from private ownership to government control.
The budget was delivered in difficult circumstances, so it wasn’t a surprise that it set out a range of major tax increases, but the full extent is still to be fully clarified and there are hints of more tax increases yet to come. The vast majority of these new taxes will fall on businesses, but other costs are also being levied in parallel. A major rise in the National Living Wage, coupled with a hike in Employers National Insurance, will see payroll costs rising by almost 8%. This may be good news for many employees, as it will mean more money in the hands of lower paid workers which may trickle down into local retailers; but it also impacts those same businesses and many more besides. The care sector is sounding alarms, as it has no choice other than to pass on the increase directly to their customers. Childcare, social care, retail, hospitality and many other sectors will have to shoulder this major increase in costs and then have to try to pass it on to customers or shed staff.
In a budget that was extremely short on mitigations or business growth incentives, we were pleased that the Chancellor took on board the concerns that FSB had been raising repeatedly and chose to increase the employment allowance for small businesses. The uplift in this allowance is very welcome, as it more than doubles from £5,000 to £10,500 which will shield the smallest employers from the damaging jobs tax and can therefore be claimed as a pro-jobs prioritisation in a tough Budget. It will mean that businesses with up to six employees on minimum wages will be slightly better off but, beyond this, our members are telling us that it was hard to find any new measures that will inspire growth or encourage entrepreneurship.
Over the years, a form of tax relief had been developed specifically to incentivise entrepreneurs and encourage them to reinvest money in their businesses – Entrepreneurs Relief, or Business Asset Disposal Relief – BADR - as it is now called. On the positive side, the Budget saw the £1million BADR allowance protected, but the rate of tax payable has almost doubled from 10% to 18% and, under certain circumstances, to 24%. Building a business involves a significant element of risk, along with personal and financial investment. For the economy to grow, we need more people to be incentivised to take that leap and, in turn, to create jobs, opportunities and prosperity in all communities across the country. This change to BADR will not inspire that.
Meanwhile, other changes, such as the tax treatment of agricultural land and the lack of ring-fencing of agricultural subsidy, are also causing immense concern to agri-business owners here to such an extent that moves are afoot to try to reverse them.
There are welcome proposals for using some of the tax-take to invest in infrastructure, which will create economic activity as it is built and will leave a beneficial legacy. But if massive sums are taken out of business, entrepreneurship is disincentivised, and the pressures are further compounded by the raft of new employment law reforms that have also been proposed, there is a very real risk that many businesses will crumple under the combined burden.
The true test of this Budget will be whether, in the face of these massive new taxes, businesses can generate the much-vaunted, elusive growth that is needed if economic stagnation is to be ended. It will be immensely challenging, so Governments in Westminster and at Stormont will need to strain every sinew to find ways to support businesses and to remove barriers to growth, as they redefine the political and business landscape.