I always try to keep my personal politics out of any articles, so let me simply say this: the message we have received in the weeks leading up to the budget has been that it would be about growth. However, with the budget now revealed, in my opinion, the cost the measures announced have placed on business is the opposite. Digesting it over the last few days, I offer my interpretation of what the budget means to me as a business owner and, therefore, quite likely, what it means to you.

There is no doubt the impact of this budget is far-reaching for business owners, workers, and beyond. First, let’s look at some figures, beginning with the government’s assertion of a fiscal black hole of £22 billion. It’s a figure the Office of Budget Responsibility (OBR) appears to dispute, claiming the figure is £9.5 billion, a discrepancy of £12.5 billion. Still, let’s assume the OBR is wrong and Rachel Reeves is right. That means the Chancellor needed to raise £22 bn. This budget raises £40 bn and has put the burden of that primarily onto employers.

The Chancellor has raised Employer’s National Insurance Contributions by 1.2%, which, on it’s own is not necessarily a major challenge. However, the significant change and the one that will hurt most employers is moving the threshold at which they start to pay contributions, lowering it from £9,100 to £5,000. This change alone will cost employers £615 per year per employee. These two changes combined will see an employee earning £22,000 cost their employer an additional £770 per year – an actual increase to the employer’s NI tax bill of some 43%.

The Federation of Small Businesses has said, “…these significant increases will add over £700 to the National Insurance costs of a full-time employee on the National Living Wage and over £800 to the cost of an employee on an average salary (£29,800).”

Charities, even those who work with public sector services that have been exempted, will be subject to the increase. The RSPCA has said its labour costs will rise by £1 million annually. The NCPCC and Crisis have urged the Chancellor to reconsider, and Age UK and Marie Curie have voiced their concerns, pointing out this move that adds costs to nurses providing end-of-life care. Care England has estimated that the NIC increase, coupled with the increase in the minimum wage, will add £2.4 billion in annual labour costs for adult social care providers. GP surgeries provide services to the NHS but operate as private businesses. The British Medical Association has been quoted as saying the impact of increased cost will be ‘monumental’. That directly affects everyone in this country, particularly those on lower wages who cannot afford private health care. The impact will be substantial for local economies, like Hastings, where many workers earn NLW. Businesses are facing a much more challenging time than they had expected, coming after what has already been a difficult few years.

Paul Johnson, Director of the Institute for Fiscal Studies, admits that Rachel Reeves was handed a ‘genuinely difficult inheritance’, that the previous government’s spending plans ‘lacked credibility’, and that Hunt’s move to cut £20bn from employee NI last year in the face of fiscal pressure was ‘not responsible’. Perhaps Rachel Reeve’s attempts to raise £25 bn now are an attempt to balance that out. However, as Paul Johnson points out, he's surprised that Labour isn’t increasing basic, higher or additional income tax rates, NI contributions, or VAT. Rather tellingly, he believes that “the continued pretence that these changes will not affect working people risks further undermining trust”. Rachel Reeves has admitted on Radio 4’s Today show that the move “will have an impact on wage growth”.

So, where will the money come from? Companies have four options:

1 – If the company is doing well enough, they might choose to absorb the cost, paying lower dividends to the Directors.

2 – They put their prices up, transferring the cost to the customer. This, of course, affects inflation, which, in turn, could negatively impact economic growth. The OBR estimates the NI change will add half a per cent to inflation.

3 – Mid to higher-earning employees pay for it through lower-than-expected pay increases over the next few years.

4 – Job cuts – employers reduce the head count. By my calculations, a reduction in staffing levels of 2.5% will be required to fund the additional costs, putting unemployment up and adding strain to the benefits system.

The IFS has stated that the government’s predictions of raising £25 bn are unrealistic and that the figure will be closer to £16 bn. The OBR has said it will cause a 0.5% rise in inflation, which we all know leads to higher interest rates, something we’ve all been battling for some years now and most of us hoped would return to more normal levels. So, I see the potential outcomes as higher unemployment, higher inflation, and less money in the economy. How, then, is this "a budget for growth."

 Now, for smaller businesses, the news is better with the Chancellor announcing a 110% increase in Employer’s Allowance, taking the threshold from £5,000 to £10,500 from April 2025. This means a small firm can employ four people at the rate of the National Living Wage without paying any employer NICs. This means 865,000 small employers will not pay any employer NICs as their theoretical bill will come in at £10,500 or less. For some, it will, in fact, mean they’re better off, especially as, for the first time since 2020, the Government has removed the employer NICs cap of £100,000 to access the Employment Allowance. However, the very real impact of this budget means that businesses will see the cost of employing workers rise by around 40p per hour per employee on their tax bill.

So, where’s the good news? Pensioners continue to benefit from the state pension increase in line with inflation, higher wages, or 2.5%. However, this is likely to be small comfort to those who’ve lost the Winter Heating Allowance.  There’s been no change in corporation tax. A boost to affordable housing, increased funding for the NHS (didn’t the Prime Minister say something about reforms before funding?), and capping Universal Credit should all be good news. In reality, I suspect that regardless of which side of the political aisle you stand, most of us will be hard put to find any enthusiasm for a budget that increases the national debt, hits SMEs and lower-paid workers the hardest, and heads us down the path to a smaller economy.