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Let’s start by accepting that Governments of all colours face difficult trade-offs. Every Chancellor has to balance public finances with political priorities. So, I guess we should look at the Autumn budget and accept that the intention was a Budget to help many households and strengthen certain areas of public spending.
However, it doesn’t matter how pragmatic we are or how understanding of the difficulties of government we want to be, the bottom line is that several measures in the Autumn budget will cause issues for businesses. It will inevitably create pressures that business owners need to understand and prepare for.
As always, the following is our opinion and not meant to be a cover-all, your own circumstances will matter more than any other factor. There is also a lot of variable data around because of how the information is sourced in the first instance. Again, we are just being indicative of the market numbers overall to add context to the impact of the budget.
The budget increases in dividend, savings, and investment income taxes were hardly unexpected, considering this was always going to be a revenue-raising exercise. The problem is not taxing dividends as such; it is the fallout of that.
The fact is that many SMEs, especially family-run and owner-managed businesses, have dividends as part of their director's core income. Therefore, those same directors now have a number of choices to make:
The result of these changes, then, could well be a sort of 'quiet squeeze' on owner-managed companies. This is all likely to lead to delayed investment that is needed for resilience. For a business already struggling to bring in a dividend-paying level of profit, this could well be just another reason not to continue to remain in business at all.
What all this boils down to is this:
Sector examples:
For businesses already seeing lower consumer demand, lower returns for the owners is hardly an incentive to keep going and, more to the point, for many it is hardly enough to live on as it is.
Shifting business-rate burden onto higher-value commercial premises is probably part of a raft of changes intended to support smaller retail units and high-street outlets. For businesses relying on warehouses, distribution centres, or large retail spaces, though, this is a significant cost increase. While the easing of rates and other measures will surely be welcomed by the smaller traders, the larger ones will need to find the money in an already difficult market.
Fixed location costs often impact directly on financial resilience, and a sudden change can throw financial planning and expansion into a very harsh spotlight. In some areas of the country, the Midlands, for example, large and medium-scale logistics are major employers and feed the local economy. The increases in the budget could potentially also result in a loss of income for suppliers, and a reduction in staffing, investment and perhaps even the cancellation of expansion into new, bigger premises.
Sector impact:
Where margins are thin, increased overheads will clearly reduce the space available before a business runs into financial difficulty. That is not good news for an industry still reeling from the impact of pandemics, fuel prices, international shipping changes and minimum wage rises.
Speaking of which…
Again, in the spirit of pragmatism, the rise in the National Living Wage will unquestionably help many workers. The minimum wage is, after all, the governmental dividing line for what constitutes the amount needed to live a reasonable way. It would be a pretty harsh view of the world to expect people not to earn enough to survive.
The downside of a rise in minimum wage, though, the practicality surrounding the desire to be fair to everyone, is that SMEs, especially in labour-driven sectors, are finding it one of the fastest and most impactful cost increases in this and previous budget changes.
Example of the reality:
We could go into deep models and variables, but I think one simple general number will sum things up. If you run a business with just 10 minimum-wage employees, you will face £8,000+ in additional annual staffing costs once the new minimum wage levels are applied. That is £8,000 to be raised through rising prices or cutting back.
This typically hits businesses with already tight margins.
Sector exposure:
In sectors where labour is the main cost, this increase will require significant price rises. That means a risk of reducing demand and even a price war down to the bottom. The other option may be a reduction in hours or headcount. Neither of those paths is helping to reduce vulnerability, though; they are just a dangerous side effect of a hostile financial environment.
Freezing tax thresholds isn’t new, and governments across right across the spectrum have used it in the past. The result is always the same, though, as wages rise, households enter higher tax bands and disposable income falls… and disposable income is what funds many of the most vulnerable sectors.
Right now, consumer confidence is not exactly high, and a nervous consumer base means B2C business gets hit hardest.
Sector outlook:
Again, let’s not beat around the bush with this; lower spending combined with rising operational costs is historically one of the clearest predictors of increased insolvencies.
We are not suggesting this Budget is inherently “good” or “bad”. Every policy has winners and losers, so there is never really a fully winning situation. In this case, though, the effect of rising wages, higher taxes, increased overheads and reduced consumer spending will challenge many businesses, especially those already trading close to the edge.
So, what can businesses do? Well, it’s about staying ahead of the changes as always, and, if you see you can’t stay ahead of them, calling us so we can talk about the next option for you.
For the moment though:
We’ve spent a long time helping business owners navigate difficult trading conditions. Early awareness and early action are the most reliable protections against avoidable insolvency. Unfortunately, they are sometimes also the best indicators that you may not be in a position to continue down a road that will only lead to financial catastrophe. If that is the situation, be honest, be practical and call us for a free chat about what to do next.
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