Businesses are bracing for the "harsh reality" of tax hikes in today’s Budget, which could have crippling consequences for employers across the region.
Chancellor Rachel Reeves’ self-professed "painful" autumn Budget will target business owners over the payslips of "working people", with the government warning that those with the "broadest shoulders should bear the heavier burden."
The chancellor is expected to raise £20bn by hiking employers’ national insurance contributions, a hit which economists say will be passed to workers through lower wage increases.
Some claim this breaks Labour’s manifesto pledge not to increase taxes for "working people" – a term it has struggled to define.
In the lead-up to the election Labour vowed to be “pro-business and pro-worker” and the “party of wealth creation”, but the Tories have accused Sir Keir Starmer of running a government of “broken promises”.
The chancellor is also expected to make changes to inheritance tax, capital gains and pension pots.
SMALL BUSINESSES UNDER THREAT
Candy Richards, development manager for East Anglia at the Federation of Small Businesses (FSB), said the looming rise to employers’ national insurance contributions has caused “considerable anxiety” among small business owners.
Employers currently pay national insurance on their workers’ earnings at a rate of 13.8pc.
The chancellor is expected to increase the national insurance rate for employers and lower the threshold for when they start paying the tax.
Firms do not currently pay national insurance on pension contributions they make for their staff, but this could also be set to change.
“Implementing this measure without protecting small businesses would have terrible consequences, making every job in the economy more expensive and resulting in fewer jobs and stagnated wage growth,” Miss Richards said.
She said: "It will leave less to invest in their staff, recruitment, or growth."
‘CRYING OUT’ FOR SUPPORT
A reform of business rates is also high on the agenda for businesses in the region.
Business rates are a tax on non-residential property and the amount a business pays is based on how much annual rent could be charged on the premises, known as rateable value.
The FSB is calling for the government to honour its election pledge to reform business rates.
“Business rates are something that continue to discourage small businesses from investing,” Miss Richards said.
“Increasing the small business rates relief threshold from £12,000 to £25,000 would reduce the burden of this unfair tax on thousands more small businesses.
“This would not only encourage more small businesses to start up but would also free up cash allowing them to invest in their business, staying competitive in an increasingly digital economy.”
Paul Simon, head of public affairs and strategic communications at Suffolk Chambers of Commerce, said small businesses are “crying out” for a taxation system that rewards growth and investment, rather than penalising it.
“We hope that Ms Reeves will confirm the start of the promised review into the replacement of the out-of-date and confusing business rates system,” he said.
He said: "This would create a more level playing field for bricks and mortar retailers and online retailers.
“As part of this, I would like to see either a significant extension to the three-month limit on vacant property relief, or ideally the abolition of that limit altogether.
“If we accept that business rates should be a tax on occupiers, it cannot be right to levy them on buildings which are standing vacant.”
INVESTMENT FEARS
Shane Julian, director at Brancaster House Financial Planning, said the government adding further tax pressures on businesses is likely to discourage investment in the UK.
“The fear is that while larger corporations can shake off these increases, or even consider relocating abroad, smaller business owners could find it harder to make a reasonable living with increased taxes on their profits,” he said.
“And with all of us feeling the effects of high inflation the last 18 to 24 months, business owners could be faced with even more pressure to earning a living.”
"So if for example there is to be an increase in employer national insurance contributions, business owners and leaders will be looking for additional opportunities or support that might stimulate or benefit the growth the county is striving for.
“Investment in wider infrastructure such as energy, transport and housing is also critical for existing businesses to create jobs and flourish, and if we are to attract others to invest here.”
The government has already committed to cap corporation tax, the tax businesses pay on their profits, at 25pc for the duration of this parliament.
However, capital gains tax could be set to rise.
Capital gains tax is charged on the profit made from the sale of assets that have increased in value.
For higher-rate taxpayers it is currently 24pc on profits from selling additional property, or 20pc on gains from other assets such as shares.
It has been reported that rates could soar to between 33pc and 39pc, but the prime minister has said this is “wide of the mark”.
Inheritance tax, currently 40pc, is paid on the value of a deceased person's assets above a threshold of £325,000.
The tax includes a number of exemptions and reliefs which could change.
Mr Gowing is concerned that business property relief and agricultural property relief could be curtailed or abolished altogether.
“This would impact the UK’s equivalent of the German ‘Mittelstaat’, or ‘middle power’ – the strong family companies which are neither very small businesses or PLCs, but which drive so much of the growth in the economy," he said.
“The abolition of business property relief could result in such firms having to be sold or broken up, which could be very damaging indeed for economic growth.”
Tax on private pensions could also change.
The government could reduce the cap on tax-free lump sums from pension pots, apply national insurance on employers’ pension contributions, or change the system of tax relief on pension contributions.
Currently basic rate taxpayers get tax relief at 20pc, and higher rate taxpayers at 40pc or 45pc.
Higher thresholds for stamp duty land tax, paid when buying property land over a certain price, are due to last until March 2025 but the government has not committed to an extension.
And fuel duty, which has not risen in more than a decade, could go up at significant cost for employers.
Changes such as an end to winter fuel payments for millions of pensioners, the state pension rising by 4pc, VAT on private school fees and an energy windfall tax have already been announced.
WHEN IS THE BUDGET?
The autumn Budget will be delivered in a statement by Ms Reeves today.
The speech to MPs in the House of Commons usually starts at 12.30pm and lasts around an hour.
The current leader of the opposition, Rishi Sunak, will give a speech responding the Budget when Ms Reeves sits down.
It will be Labour’s first Budget in 14 years.
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