As a small business owner in the UK, I’ve spent years carefully balancing my company’s budget, investing in talent, and ensuring that we offer competitive wages and benefits to our employees. But the recent announcement by Chancellor Rachel Reeves regarding the increase in employers’ National Insurance contributions (NICs) has me, along with many of my peers, deeply concerned about what lies ahead.
The decision to raise NICs from 13.8% to 15% starting in April 2025, along with the reduction of the threshold for when employers become liable to pay, could have a devastating effect on many of us running small and medium-sized enterprises (SMEs). It’s not just about a few percentage points – it’s about the very sustainability of our businesses. The increase is substantial, and for many of us, it threatens to add an unbearable burden to our operating costs.
The Problem: Increased Costs with Limited Flexibility
In simple terms, this tax hike will directly increase the cost of doing business. It will raise the amount I have to pay for each employee, including those who are on lower salaries. This could force me to make tough decisions. Do I raise wages to compensate for the increased costs, risking even higher inflation? Or do I cut back on staff hours, reduce hiring, or even make layoffs? It’s not a choice any responsible business owner should have to make.
I’m particularly concerned about the impact this will have on the retail sector, which is already grappling with inflation, supply chain issues, and post-pandemic recovery. As a business owner, I’ve already had to navigate rising costs across various fronts – from raw materials to energy bills. Adding another significant cost into the equation risks pushing me into a corner where I either compromise on the quality of my service or, worse, close my doors altogether.
The government’s reasoning for this tax hike, aimed at reducing the £22 billion deficit, is understandable, but it’s a flawed approach to assume that small businesses can absorb this additional burden without consequences. Many SMEs are still recovering from the pandemic, and in the current environment, we simply cannot afford any more fiscal strain.
Potential Solutions: How We Can Balance the Books
The problem is clear: the tax hike will put an extra strain on businesses already operating on tight margins. But what can be done to alleviate this pressure without stifling economic growth or overburdening workers? Here are some ideas that could help create a more balanced solution:
- Incremental Increase Rather than a Sudden Hike
Rather than a sharp increase, which feels like a punch to the gut, we could explore a more gradual rise in NICs over a period of several years. This would allow businesses time to adjust their financial strategies, make the necessary operational adjustments, and plan ahead. The abruptness of the current increase makes it much harder for businesses to adapt without significant disruption. - Tax Credits for SMEs
The government could consider introducing tax credits or rebates for SMEs to offset the NIC increase. For example, providing financial relief for businesses that invest in skills development or hire apprentices could incentivize growth while also helping small businesses navigate the increased costs. This could help businesses like mine retain talent while investing in the workforce of the future. - Reevaluating the Thresholds
The reduction in the threshold at which businesses become liable for NICs feels particularly harsh. The threshold should be raised, or at the very least, aligned with inflation so that small businesses with lower-paid employees aren’t hit disproportionately. By doing so, businesses would have a clearer path to growth without the fear that every new hire or wage increase will push them into a higher tax bracket. - Creating More Flexibility for Part-Time and Seasonal Workers
In many sectors, part-time workers and seasonal staff are essential, particularly in retail and hospitality. These workers are often lower paid and can be hit hardest by NIC increases. Introducing specific tax relief for businesses employing large numbers of part-time or seasonal workers could help mitigate the negative impacts on these vulnerable groups. - Business Consultation and Transparency
The government needs to engage more directly with business owners to understand the impact of its decisions. Holding consultations with the business community, particularly SMEs, would help ensure that any changes to taxes or regulations are implemented in a way that is feasible for those of us on the ground. Small businesses are the lifeblood of the UK economy, and our concerns must be heard if we are to keep the economy thriving.
Conclusion: The Importance of Balance
Ultimately, while taxes are necessary to fund essential public services like healthcare and education, the government must recognize the delicate balance between tax revenues and the viability of businesses. By offering gradual reforms, targeted relief, and more flexibility, the government can ensure that businesses like mine can continue to thrive without the fear of being financially crushed by these rising costs.
As a business owner, I believe that we can weather this storm – but only if the government listens and adapts its policies to reflect the realities of running a small business in today’s economy. The key is not to hinder the growth of small businesses but to create an environment where they can continue to grow, create jobs, and contribute to a flourishing economy. The government must act thoughtfully and in partnership with the business community to ensure we all succeed together.
