Small firms face even higher costs as the Chancellor revealed a raft of new measures in the Autumn Budget.
Reeves delivered a carrot in the form of training for under-25 apprentices being free for SMEs, but small businesses say higher costs will only exacerbate the ever-growing burden.
Increasing the minimum wage, a hike in dividend taxes, and slashing the rate on writing down allowances risk stalling employment and pushing companies to raise prices further.
Higher costs will do nothing for growth
The Chancellor said she wanted to grow the economy, but founders say the Budget is unlikely to encourage entrepreneurship.
A surprise two percentage point increase in dividend taxes will make it less attractive for people to start their own business, with the Federation of Small Business saying it makes investment in your own business ‘one of the least tax-friendly things you can do with your money.’
George Hughes-Davies, founder of juice company Daily Dose, told This is Money that there was ‘nothing in the Budget to encourage people to start a business or keep their business in the UK…. It’s the complete opposite of growth.’
Another blow: Small firms say the Budget is piling on costs to employers
Simon Squibb, founder of HelpBnk and entrepreneur, added: ‘Small businesses and founders are still being taxed harder than they’re being supported.
‘First-time entrepreneurs don’t need frozen thresholds or diluted incentives. They need a system that backs people who build.
‘Right now, the smallest contributors carry the heaviest load, while large corporations use legal structures and loopholes to minimise what they pay. That imbalance doesn’t drive growth. It restricts it.’
There is a concern that changes to dividend taxes will also change business owners’ behaviour.
Malli Kini, a partner at Blick Rothenberg says: ‘More money will stay locked in companies or be diverted into planning structures instead of being reinvested in the economy.’
He added: ‘Dividend rate increases of 2 per cent will be a direct tax rise on entrepreneurial reward. Dividends are how most founders are paid once they’ve taken commercial risk and paid corporation tax.’
After the pain of the 2024 Budget, small firms were not expecting another increase in employer costs, but a higher minimum wage will make it harder for thousands of businesses.
The national minimum wage for 18-20 year olds will rise by 8.5 per cent to £10.85 per hour from next April. For 16-17 year olds it will go up by 6 per cent to £8.
The Office for Budget Responsibility’s report found that the increase in employer National Insurance costs (NICs) in the last Budget has been a significant factor behind the increase in unemployment.
Elsewhere, Mark Levitt, partner at Blick Rothenberg, says employers who want to maintain salary sacrifice benefits for their employees will have to pay out more money.
Hughes-Davies says: ‘We have multiple members of staff who use salary sacrifice to put money aside for the future. It’s going to cost the business and the employees more.
‘Potentially, we’ll look to make up the difference to encourage people to save, [but] it will cost us.’
Kate Hayward, UK managing director of accountancy platform Xero added: ‘In labour-intensive sectors such as hospitality, retail and care, the new measures are likely to represent a major increase in operating costs at a time when many are already working hard to manage rising overheads.’
‘Prices will have to increase’
The Chancellor announced that she will permanently lower business rates for 750,000 retail, hospitality and leisure companies.
The small business multiplier will be 5p below their national equivalents, the lowest tax rate since 1991. However, properties with rateable values of £500,000 and above will have a rate up to 10p higher than the national standard multiplier.
For Hughes-Davies, who owns a factory in Cambridgeshire, it’s another blow. ‘[These new rates] will bring our factory into play.
‘They say it’s mega warehouses like Amazon, but it’ll be any factory or property in London. We’re probably going to have to push more costs onto consumers.’
Mary Domange, founder of Wine at Home, welcomed the significant relief in business rates for hospitality, but businesses will ‘still be hit hard by the National Insurance increases.’
Daily Dose founder George Hughes-Davies says the Budget will do nothing for growth
She is more concerned about the impact of Extended Producer Responsibility, which makes businesses responsible for the cost of managing and recycling their products after use.
She told This is Money: ‘Many of us are wondering today whether we will have a UK Wine Industry a year from now after this latest blow to duty rates, which are set to increase by 3.66 per cent in February, on top of the extortionate costs of EPR which will also add 10-15p per bottle to the base price of wine.
‘With the overall increase in costs of running a business and employing staff, one has to wonder whether wine will become something we once enjoyed in the UK.’
‘Customers won’t have enough money to spend’
Business owners are worried that the freeze in income tax thresholds and other measures that take money out of people’s pockets will have a knock-on effect.
Mandy Brown, owner of Harrison and Brown, a family-owned furniture shop in Sunderland, said: ‘The increase in dividend tax is certainly not good news, and the rise in minimum wage continues to push up costs for small businesses like mine.
‘Freezing the personal tax band isn’t helpful either, it leaves the public with less spending money, which ultimately affects the people I want to see shopping in my store.
‘I am relieved there’s no increase to VAT. The mention of reductions to business rates is welcome, but we still need clarity on when these will come into effect and by how much.’
Hughes-Davies says he’s also concerned about consumer confidence after the OBR’s ‘fairly bleak’ assessment.
‘People will be more conscious about what they buy. They may downgrade to own-label products, whereas before they might buy a more expensive product.’
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