Businesses and charities are taking a big hit from Rachel Reeves’ well-intentioned plan to fix the public finances, writes KEITH ANDERSON
What is the difference between a politician and a business owner? If a business owner makes a bad decision, they will be sure to face the consequences, and soon. Now, I accept that a politician who is thought to have got it wrong might not be re-elected but there is no immediate risk to their livelihood and usually a soft landing when it’s time to call it a day, whether voluntarily or involuntarily.
For a business owner, there are always decisions that need to be taken which will impact them, their employees and customers or clients, which will play out now and not at some time in the future.
Much has been written and said about the recent budget and views will differ, depending upon personal circumstances and political leanings. However, what is clear is that the decisions taken will have consequences, in some cases far-reaching, and many will have been unintended.
The increase to employers’ National Insurance, by reducing the threshold at which it becomes due and increasing the headline rate, is a prime example. It is estimated by HM Treasury in its Autumn Budget 2024 Policy Costings document, that this will raise just under £24 billion in 2025/26, rising to just under £26 billion in 2029/30, which at face value seems good if you are trying to repair the public finances, but what of the impact on businesses, their customers and employees?
Supermarkets and other large employers have warned of price increases for consumers and reduced wage settlements for employees, and many economists suggest that inflation will remain sticky, and interest rates will fall more slowly consequently.
And, of course, it is not just big business, which is affected with, arguably the most significant impact on the small and medium sized businesses which form the backbone of the British economy. If prices are not to increase or wage settlements are to be maintained at the levels recently set, that will inevitably lead to a squeeze on margins and profitability and limit the scope for investment and growth which is so desperately needed.
For some, profit is a dirty word but, without it, where will the tax revenues come from to fund our public services and, perhaps less obviously, to encourage philanthropy?
The best run and most responsible businesses take corporate and social responsibility seriously and, apart from making donations, encourage employees to support charitable work during working hours.
As businesses look to cut costs and, in some instances, limit employee numbers, there is a danger that initiatives such as these will be restricted in scope, with the obvious impact on the charities sector, compounded by individuals having less headroom to make their own donations from reduced disposable income, due to inflation and restricted wage settlements
Of course, it does not end there for the charitable sector, as it is not exempt from the increase to employers’ National Insurance. In a letter to the Prime Minister, the CEO of Leuchie House, (a respite care centre in East Lothian that provides an important service not available on the NHS), wrote of the unintended consequence of the employers’ National Insurance increase, calling it the equivalent of adding a thirteenth month onto his charity’s wage bill.
And it is not just in Westminster that the consequences of our politicians’ decisions have an impact. The Institute for Fiscal Studies has suggested that higher income tax rates in Scotland may have reduced, rather than increased, the devolved tax receipts, resulting in calls for the income tax rates to be aligned with those in the rest of the UK.
Those of us who have always lived in Scotland are unlikely to leave but the unintended consequence of the policy is the risk that people with no connection to Scotland will choose to work in other parts of the United Kingdom, with an adverse effect on Scottish public finances.
The astute business owner will be considering carefully what steps they can take to mitigate the effects of these, and other changes which our legislators throw at us, including what is coming down the track with capital gains tax. We are working closely with those businesses, as it becomes even more important to plan.
Billy Connolly’s quote that “the desire to become a politician should bar you for life from ever becoming one” is as enjoyable as it is paradoxical, but of course we need politicians. Perhaps though if those who do govern us were required to have practical experience in the commercial world, preferably the private sector, and an understanding of human behaviour, then there might be fewer unintended consequences.
Keith Anderson is founder and CEO of Vialex
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