Ten days on from the Autumn Budget, the UK government is facing a barrage of pushback from shop, bar, and restaurant owners that have banded together to decry the impact on businesses.
Over the weekend, supermarket bosses lambasted the rise in employer National Insurance contributions (NICs). Meanwhile, more than 200 hospitality leaders wrote a letter to the Chancellor warning the changes are “unsustainable” and could force many firms to close.
Ahead of the Budget, the government went to great pains to tell businesses to expect little, warning that a spending “black hole” would require substantial tax rises.
Still, the package has clearly caught many off-guard. And while Whitehall vowed to not increase taxes for “working people”, what’s bad for business can be very bad for workers.
Budget weighs heavy on high street
Funny how a small number can tip the balance sheet. Employer NICs will rise by 1.2 percentage points next April, but the true cost for businesses will be a much higher number.
In an open letter to Chancellor Rachel Reeves, UKHospitality board members — who include the boss of Stonegate Group, owner of 4,800 pubs — laid bare the damage to profit margins. Ultimately, customers will have to pay more in order to keep pubs and restaurants from going under, and would need to raise prices by 6% to 8% to absorb the NICs burden.
“The changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners,” the letter reads, adding that the changes will “unquestionably lead to business closures and job losses within a year.”
Hospitality is already struggling to hire employees thanks to labour shortages. At the end of October, a survey by Startups of 531 SMEs found that the industry has the most businesses that are less than one year old (22% compared to 12% in the next-highest, construction).
This is likely a consequence of the many older pubs and bars that have been forced to close already due to rising staffing costs in the past half decade.
Retail woes
The whole high street is feeling the pinch. Asda has described the Budget as a “big burden” that will cost around £100m, and would likely lead to price rises for customers.
Separately analysis by US consultancy Morgan Stanley has found that Tesco, which employs around 300,000 workers in the UK and is one of the country’s largest employers, will need to spend £1bn more in National Insurance payments.
Add to that the new minimum wage, which will also come into effect next Spring, and hiring plans will likely have to go out the window for many struggling employers.
Pay rises run dry
Putting the onus of tax rises on businesses, rather than workers, was the obvious goal of the Autumn Budget. Yet if payroll costs become too high, or customers decide to shun their £8 pint, it’s not just organisations who will suffer, but staff and job seekers as well.
Also in our survey, three in ten SMEs told us they expected to hire between one and five new staff members for 2025. Yet, if recruitment becomes unaffordable, such hopes of scale-up may be dashed. Pay rises for existing employees may also become out of reach.
“[As a result of the budget], many businesses will have to reconsider investment and drastically cut jobs and reduce the hours of team members”, predicts the UKHospitality letter.
Support for SMEs?
Official statistics indicate that 99% of all hospitality and retail businesses are SMEs. Before it came to power, Labour had pledged to support these firms by reforming business rates. However, in the Autumn Budget, its promises went the other way.
Reeves served up a small plate for companies in the form of 40% relief on business rates. However, this is a significant drop since last year. Known as Retail, Hospitality, and Leisure (RHL) Relief, the discount had been set at 75%.
UKHospitality is now proposing that the government bring forward its plans for business rates reform to April 2025, in order to mitigate the impact of the incoming tax changes.
“We understand that these proposals come at an immediate financial cost,” concludes CEO Kate Nicholls, “but we are absolutely firm in our belief that the lost growth potential which would result from inaction would be substantially more expensive”.
Have your spending plans been scuppered by the budget? Learn how to create a cashflow forecast to predict your business’ financial future.
