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More than half of the tax rises planned in the Budget will be funded by businesses, with an increase in the amount employers pay into national insurance to generate £25 billion.
Chancellor Rachel Reeves has decided that businesses will bear the brunt of her total £40bn tax rise by raising the national insurance rate and reducing the threshold at which employers start paying it.
Small businesses have been offered some exemptions or relief, but overall businesses face higher minimum wages, higher business rates, as well as the cost of adapting to new worker rights in under the new laws.
Reeves said increasing national insurance was a “difficult” but right choice in order to fund public services.
Ahead of the budget, businesses, particularly smaller ones, warned that such extra costs could leave them with less money available to hire staff or offer pay rises – and ultimately impact the government's objective of growth of the British economy.
But Reeves said the “only way” to boost growth was through investment and warned “there are no shortcuts”.
“We’re asking businesses to contribute more,” Reeves said. “I know that the impacts of this measure will be felt beyond businesses.”
Businesses come in all shapes and sizes, meaning the impact of the choices the Chancellor makes in her Budget will affect them differently.
Kate Nicholls, chief executive of UK Hospitality, said the tax increases would be a “brake to growth” for the UK.
“Businesses with razor-thin margins are already struggling with sharp increases in labor costs – we are seeing job and hour cuts, reduced investment and business viability, as well as an increase in prices,” she said.
What are the higher costs businesses face?
National Insurance: The employer contribution rate will increase from 13.8% to 15% on a worker's earnings above £175 from April. The threshold at which employers start paying tax on each employee's wages will be reduced from £9,100 a year to £5,000. However, the Chancellor said she would extend the Employers' Allowance – the amount employers can claim on their National Insurance bill – from £5,000 to £10,500. Minimum wage: The minimum wage for over-21s, known officially as the National Living Wage, will increase from £11.44 to £12.21 from April 2025. For those aged 18 to 20, the minimum wage will increase from £8.60 to £10. Apprentices will see their pay increase from £6.40 to £7.55 an hour. Business rates: The current 75% reduction on rates, which expires in April 2025, will be replaced by a 40% reduction, up to a maximum of £110,000. Business rates are applied to most non-residential properties such as shops, offices, pubs and factories. However, this means that many businesses will see their business rates almost double. Workers' rights: Plans to improve workers' rights will cost businesses up to £5 billion a year to implement, according to the government's own analysis. The new measures will have a disproportionate impact on small businesses.
The government is committed to being “pro-business” and has made growing the British economy, in order to improve living standards, its main objective.
But businesses have warned that putting a tax burden on them would make it harder to invest, hire people and create jobs – and ultimately hurt growth.
There are also concerns about how tax hikes on businesses may affect the workers they employ.
In some cases, businesses could pass on the increased costs they face to customers by raising prices. However, workers' pay increases could be limited as employers seek to save money.
The increase in national insurance could also have an impact on other tax revenues, for example if it results in lower wage increases. If companies absorb the extra costs, their profits could be lower and the amount they pay in corporate taxes could be less.
Large multinational corporations will likely be able to shoulder and absorb the additional costs, but small, independent businesses will be hit harder by tax increases.
