Budget 2024 in review – Lisa Greenwood

Some surprises and a few shocks in yesterday’s Budget 2024. The new Government had been very vocal that this was going to be a tough budget, with rises teased before the announcement in National Insurance and Capital Gains Tax.

Great to see no change in Corporation Tax, but this doesn’t help businesses due to the additional employment costs now being levied on them instead (which as the HR and Payroll Partner, I always have a keen interest in understanding changes to employment taxes).

Capital Gains Tax was scheduled to rise, and I thought the increase would be higher than that put forward. This won’t be favourable (and possibly unfair) to those selling their businesses due to genuine retirement purposes, as we see an increase from 10% to 18%. IHT sees changes for business and agricultural assets which I am sure will be covered in the comments made by my fellow Partners. Stamp duty increases on purchase of 2nd homes from 3% to 5%.

Key changes for employers:

Whilst income tax rates were not affected, the cost for the employer in employing individuals has been significantly affected.

1. Employers NIC rate increased from 13.8% to 15% from April 2025
2. The rate on which Employers pay NIC starting on salaries above £5,000 (currently £9,100)
3. Employment Allowance increased from £5,000 to £10,500.
4. National Minimum Wage increases for 18-20 year old from April from £8.60 per hour to £10.00 per hour (16% increase)
5. National Minimum Wage increases for 21+ from April to increase to £12.21 per hour from £11.44 per hour (7% increase)
6. No mention of the NIC categories changing regarding apprentices and under 21 year olds which are currently exempt from Employers NIC
7. No mention of the limits changing relating to Auto Enrolment Pension contributions

What does this mean in reality for Employers?

The cost of employing individuals is automatically going to increase by £615 a year, per employee, that earns over £9,100 due to the reduction in rate at which employers start paying Ers NIC.  On top of this, there is the additional rate of Employers NIC to be paid of 1.2% as the rate increases from 12.8% to 15%.   This means that an individual currently paid £25,000 per year is going to cost the employer £806 (3.2%) more for the year.

We then have the impact of the National Minimum Wage which I will show below in some worked examples:

(example assumes that the individuals are not apprentices)

Whilst the Employment Allowance has been increased, which possibly only helps those smaller employers with 5 or less staff, for most employers their costs are still going to increase beyond the allowance that has been given to them.  Using the example of a company employing 6 members of staff currently working 35 hours a week and paid at the national minimum wage rate – the impact is as follows:

I am struggling to understand how this helps the “working man” as if the businesses costs are going to increase by 7% minimum, this means that in order to maintain a level of profitability and therefore continue to pay corporation tax at the levels being contributed to the tax pot, businesses are going to have to put their prices up to avoid standing still.  Prices would therefore need to go up by at least 7%, maybe higher, which means that the “working man” is now paying 7% more for products and services, all while none of the tax cuts have increased their net wage?  However the issue is greater than this, as if all the minimum wage levels increase at the rates stated, other staff are likely to insist on similar levels of rises to differentiate their abilities, and this puts more pressure on the businesses cashflow to have to increase their prices.

So the hamster wheel starts spinning – costs of public services and goods increases – means that individuals now spend less to protect their income – which means less indirect taxes – less profits less direct taxes.  The numbers just don’t make sense.

It was cited on several occasions of recent months that “tough decisions need to be made”. Surely if we have a crisis now, don’t those changes need to be made NOW? Why are we waiting until April to put changes in place?  A failing business doesn’t have the luxury of giving it 6 months before making the tough decisions and implementing them. The message just appears to be conflicted – although thankfully this gives businesses time to plan.

My final comments (usually a flippant reference to still being able to drink to drown my sorrows as alcohol duty maintained),  I have to ask do the numbers actually stack up? £40bn in additional taxes – is this net of the additional costs to the government for its own workforce?  Lots of “extra funding allocated” to various projects including NHS and Education, but I am sure these totalled more than £40bn, so where does this come from if not taxes? Smoke and mirrors come to mind, and I have to wonder what stress testing was actually undertaken on the impact of SME’s still being able to contribute to the £40bn with these additional pressures, where this could mean the end for the some!