The rows over the government’s recent Budget continue to rumble on, and for businesses in the South East, the impact is still being assessed.
There were positive announcements about infrastructure investment, but the headlines were dominated by the changes to Employer National Insurance Contributions (NICs), and that is where most businesses are going to feel the hit.
Whilst small businesses with only a handful of employees might find the changes cost-neutral, most employers are looking at significant tax increases, and already, we are seeing signs of that feeding through to a slowdown in the jobs market and wage inflation.
But it’s not just higher NICs that businesses are facing. Business groups have complained of higher NICs, a rise to the minimum wage and new employment protections for workers as a “triple whammy” which will slam the brakes on hiring.
Whilst good news for employees, for a Budget that was supposed to unlock a new era of economic growth, these changes may end up being counterproductive.
And that’s before you get onto retail and hospitality, two sectors already struggling, and both will feel the full force of the NICs changes and have now also been hit with the end of some pandemic-era business rates reliefs.
Everyone understands that revenues need to be raised from somewhere – the UK’s public services are creaking from decades of underinvestment, particularly in capital, which has left us lagging behind our peers in everything from railway punctuality to CT scanners. However, the route to growth must be with business, not in spite of it.
It is the private sector that drives job creation, innovation and investment and small businesses in particular, which employ 61% – almost 17 million people – of the workforce.
It is not all negative – the government is tackling some of the obvious deficiencies in the economy, such as instituting a new Industrial Strategy (the first since 2017), a 10-year infrastructure strategy and taking steps to try and get some of the 9 million unemployed people of working age back to work, but they need to be careful not to choke off growth before it even arrives.
Most businesses want to grow, expand and hire more people. The government’s job is to create the right environment so that entrepreneurs and shareholders take the risks that will deliver this growth, and the tax receipts will flow in return.
The growth figures in the Budget forecasts already look sluggish – peaking at 2% in 2025 before falling back – which will not be enough to leave voters feeling that their lives have significantly improved by the time the next General Election comes around.
The government is pinning its hopes that a short-term splurge of investment will cause those growth numbers to improve, or it is going to face very tough decisions in a few years, particularly as it has boxed itself in with the promise of no more tax rises.
The Budget should have unlocked business optimism in this drive for growth. However, the initial impact appears to have been the opposite, with businesses feeling cautious and nervous. Unless this changes, this Budget for growth might just end up doing the opposite, and that’s a problem for all of us.
