Announcements that benefit who exactly?
News prior to the Autumn Statement indicated that Jeremy Hunt was going to help businesses, and as someone that provides services to many small businesses, I was excited to hear what he had to say. However having listened to the budget, even though I am partially deaf, I am struggling to see where the help for the businesses is going to come from exactly. Maybe I nodded off at that point, highlights if you can call them that:
- Corporation Tax rates remain increased as previously announced from 19% to 25% depending on the profits made
- Full Capital Allowances at £1 relief for every £1 spent remains in place which is good for those that have the profits and cash to invest in equipment, but what about the others that can’t?
- Class 4 National Insurance for self employed cut from 9% to 8%
- Class 2 National Insurance for self employed abolished
- National Living Wage (NLW) increased to £11.44 an hour from April, but minimum age now 21 rather than 23
The majority of cuts have come not from tax, but from National Insurance and therefore what does this mean for services like education, NHS and emergency services already struggling? Other than capital allowances, where is help for businesses other than the pressure that the National Living Wage (NLW) increase is likely to cause – something I examine further below.
The headline NLW will see an increase of 9.8% from £10.42 to £11.44 for those over 23 years old – however that is not the end of it – it is now going to apply to those aged 21 – 22 years old which actually represents an increase for them of 12.4%. It makes no logical sense to me why 21 and 22 year olds should experience the same level of increase, unless this is to encourage a saving attitude amongst the young to enable them to save deposits to get them on the housing ladder. Sadly, the cynic in me says this is simply going to be spent and not saved and in the majority of cases, not going to go to the parents who are experiencing the real increase in costs. Will this boost the economy as it is obviously intended to do?
The difficulty with an increase in NLW is the increases expected from the remaining workforce. Employees are not tolerant when it comes to accepting that only those affected by NLW get rises. The real practical life issues faced by businesses are that this increase narrows the gap of the rates paid to those with higher skills who are likely to then expect pay increases of an equal amount? Employers will struggle to simply say no we can’t do this. This is where the circle of life or death starts all over again – if a business that is mainly labour-based has to increase its wages by 9.8% and cover the corporation tax increase of 6% to stand still – this means prices need to go up a minimum of 16% in the next year. In reality, I would argue to ensure the cashflow gap is not affected, those price increases need to take effect now to stand a chance of getting some funds behind them. This increase surely just takes us back to where we were before, with inflationary price increases hitting those that NLW was meant to protect? Inflation starts to increase again, interest rates increase not fall and everything returns to where we came from?
Another statistic that caught my eye was that £1.3bn being provided to help people who have been unemployed for over a year – I find this shocking given that the majority of businesses that I talk to are experiencing issues trying to recruit staff. There seems to be no shortage of jobs available – the real issue is that people don’t want to do the jobs being offered or take the salaries offered to allow them to be trained to do the jobs. Does £1.3bn need to be invested in getting people to work when they are jobs available? Surely this money would be better spent on essential services that are suffering greatly at the moment or getting people to work in these environments. What effort will really be made for those “that are able to work” but “refuse to seek employment” and lose rights to benefits – does this mean that employers are likely to experience time wasters from those taking a job and then leaving it just to qualify?
Further investment in AI technologies – surely if the government is spending £1.3bn to get people working, why would we then increase AI technology whose aim is to replace skills undertaken by individuals currently paid to do these jobs. This means that the rates paid for those jobs decreases and this opens up a whole new can of worms…
An Autumn Statement full of nothing significant in the real world, that creates further pressures and issues for business owners. Seems I better stock up on Hendricks between now and the end of July as my main comfort is likely to be a regular gin and tonic or two.
Lisa Greenwood – Partner