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So, we can’t deny that this wasn’t a great budget for business. There was not much in the way of additional help. Looking at it from the other angle, there were no hidden nasty surprises either. That doesn’t mean it isn’t going to have an impact but at least we are not suddenly dealing with an unexpected change of direction. So, let’s take a quick look through the main points and what they could mean.
The change in National Insurance Contribution rates (along with a somewhat unexpected discussion around abolishing NIC entirely in the future), was probably the headline announcement for most people. Just as a reminder, the change was a fairly significant reduction of 12% down to 8% for employees and from 9% to 6% for the self-employed, starting from 6 April 2024. Taking an average wage of around £34k as a baseline for a sole trader that means they could be over £1000 a year better off. A seemingly significant amount. However, there is doubt about the impact overall. Will that be enough to offset the rising cost of business? Inflation may be lower, but it is still a factor in costs and the damage has already been done in areas such as fuel costs and cost of goods. It is easy to see a situation where the short-term increase of the NIC reductions is negated very quickly by the rising cost of business reducing take home pay.
In theory, the increase in spending power brought on by the NIC reduction (also around £1000 a year for salaried workers) could mean more money being spent in areas such as retail. However, again, we do need to be realistic and offset that against the increase in the cost of living that will continue to affect the spending patterns of consumers. A single factor such as the huge increase in car insurance costs may wipe that NIC return out in one fell swoop.
Well, we probably should mention this because, again, it could have an impact on some areas of the business community. It was a relatively small increase in the threshold from £85,000 to £90,000. In fairness, this could reduce the administrative burden on some businesses. However, again, this will probably be offset by the increased cost of business in areas such as insurance, fuel, utilities, and salaries, and particularly the latter with the recent increase in the national minimum wage. For the limited number of businesses operating in exactly that threshold area for 2024, it’s welcome, but in the grand scheme of things, I suspect there will fairly small number affected by the change.
The creative world did well out of the budget. There were enhanced tax reliefs for the cultural sector, new tax credits for independent films, extra relief for visual effects costs, and permanent relief for theatres, orchestras, museums, and galleries. All of which are very welcome for an important and financially beleaguered part of our society. However, areas such as leisure and hospitality that often have crossed customer bases with the arts, were not given any specific help. In fact, many would argue there was a noticeable absence of specific or general help for businesses. Perhaps I am being a little unfair though because there was good news in a freeze on duty for fuel and alcohol, which could help reduce the cost of business and the price of goods for some. Realistically though, it feels like this is a drop in the ocean for the struggling hospitality, entertainment, restaurant, and retail sectors, and the people who supply them. Traditionally when the cost of living is up, the odd night out and weekend trip to the theatre, are not high on the agenda for consumers.
Now we have had time to think about things and look at the potential outfall, the Spring 2024 budget seems to have a ‘but…’ attached to every good point. It’s not as bad as it could have been, and that’s good news, but the bottom line is that there was not a lot for business to cheer about. It feels like what the Chancellor gave on the one hand, the ongoing difficult economy probably took away on the other. I wish I could be more positive but, in my opinion, and as seems to be the general consensus, there was not a lot in the budget for business.
What it means in the long run is that businesses in the UK are still facing a difficult year. Our advice is still the same. Costs for staff are going to increase due to minimum wage rises and the expectation this will create in other employees. Business rates are only going to go one way now unless there is a very unlikely change at the Westminster level. Inflation is still high, and the base rate is not dropping yet. There are significant increases in costs expected in insurance, services, utilities, and other areas. Finally, we need to add in the change to corporation tax that has been coming for some time. It seems like there are a lot of basic cost of business changes, and most are in the wrong direction.
Sadly, it seems very little in the budget is likely to change the hard times to come so we are working hard on our new survival guides to help businesses focus on what’s important. In fact, that one piece of advice is a good place to end this blog, with that one piece of advice. Put the budget behind you and focus down on cash flow and what is important to you and your business.
If you are worried that your business is facing financial problems, call us or book your appointment to discuss things via our help for directors section.
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