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Fears for labour-intensive businesses after National Living Wage increase

| Nicholas Smith | 22 November 2023

What does the ‘Autumn Statement for Growth’ mean for the region’s SMEs and employers?

After hearing the Chancellor's statement, I must urge employers across the region to consider the long-term implications of today’s confirmed rise in the National Living Wage.

One of the headline announcements from the ‘Autumn Budget for growth’ on Wednesday 22 November was a rise in the National Living Wage, announced on the basis of tackling poverty through work.

While the news that the National Living Wage is increasing by an inflation-busting 9.8% to £11.44 per hour complements the announcement that employee National Insurance contributions are set to reduce from 12% to 10% from 6 January (thereby increasing the disposable income of 27 million people across the UK) it raises further concerns about increasing costs for UK employers.

However, I must express concern about hidden costs buried in lofty promises, with support available to employers and enterprises being largely unclarified.

Labour-intensive businesses should brace for higher expenses. The increase in the National Living Wage to £ 11.44 will also affect a lot of employee-heavy industries such as hospitality and care homes - so we may well see companies struggling to reconcile this day-to-day increase in expenses. Will they choose to lay off staff, restructure their offering - or cut overheads in some other ways?

There are indeed some positives, such as the confirmation that the East Midlands will receive a share of £3 million in private investment for a ‘mini Canary Wharf’ as part of the expansion of levelling-up measures, many of the perceived victories for taxpayers simply shift the onus to employers - which is unlikely to regenerate the nation’s struggling high streets.

Chancellor Jeremy Hunt announced a handful of the proposed raft of 110 measures to “back British businesses” in what he proclaimed to be the “largest business tax cut in modern British history” but the reality is that for labour-intensive businesses, such as hospitality and the care industry, these will create much higher staff costs.

Of the measures promised, very few have been clarified. We simply don’t know what the majority of these changes will be - so it is virtually impossible to quantify how impactful they will be for businesses struggling to balance their books day-to-day.

What we do know is that the Chancellor has made a stark U-turn on previous promises not to announce tax cuts until the spring, which is likely to leave business owners confused and frustrated - as there is enough economic uncertainty without compounding the problem with political showmanship and effusive rhetoric.

Amendments to policy such as the abolition of Class 2 alongside a 1% reduction for Class 4 National Insurance contributions for self-employed individuals is positive in theory but not very impactful in practice, especially as the average self-employed business owner is only eligible to save up to £192 each year in Class 2 and might well ask why employees received a higher reduction in their rate and three months sooner.

While the news that small retail businesses and those in the hospitality sector will continue to benefit from various business rate tax reliefs for a further year and that the State Pension triple-lock will continue with an increase of 8.5% (well above inflation), all this does is compound the inflationary pressures at play.

These measures are likely to further delay the Bank of England being able to announce a decrease in the rate of inflation - meaning that businesses will pay more for longer, and this might actually delay rather than accelerate investment.

Detailed analysis

Our in-depth budget analysis will follow tomorrow morning and I will be sharing my thoughts in a special post-Statement webinar on Friday 24 November, alongside a panel of experts to provide a detailed summary of the announcements and what they mean for individuals and businesses in our region.

Details on the webinar are available here.

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