In its first budget since taking office, the UK’s Labour government, led by Chancellor Rachel Reeves, has laid out policies aiming for a “fair and balanced” approach to stimulate growth while addressing fiscal stability concerns. The October 30, 2024 budget introduced significant changes, including a 1.2 percentage point increase in employer National Insurance Contributions (NICs) and an uplift in the National Living Wage. Employers will see NICs raised from 13.8% to 15% by April 2025, and the threshold for contributions will lower from £9,100 to £5,000 annually. Labour has also increased the National Living Wage to £12.21 per hour, an effort to alleviate pressures on low-income households but likely to increase wage bills for businesses significantly
For small and medium-sized enterprises (SMEs), these changes bring both challenges and opportunities. Increased NICs and the lowered threshold for contributions may strain their budgets, especially for those heavily reliant on staff-intensive operations. The government has increased the employment allowance to £10,500, which will ease some NIC-related costs for qualifying SMEs, though it is likely not enough to fully offset the rise in NIC liabilities
On the positive side, the significant National Living Wage hike could boost consumer spending, especially in retail and hospitality, potentially benefiting businesses serving the domestic market. However, with limited tax relief for SMEs compared to larger entities, some smaller enterprises might struggle to absorb these higher operational costs without reducing hiring or increasing prices
From tax hikes to incentives for electric vehicles (EVs), business leaders have reacted to the budget’s multifaceted approach with both appreciation and caution. Below, SMEToday presents expert insights as leaders across various sectors offer their perspectives on how changes, from tax hikes to wage adjustments and environmental incentives, will impact small and medium-sized businesses. With rising costs, employment challenges, and a push for sustainability, these industry voices provide a comprehensive view of the potential hurdles and opportunities that lie ahead for UK SMEs.
Capital Gains Tax Increase: Potentially Accelerating Business Sales
According to Reward Funding’s Head of Treasury, Tom Dundas, the rise in Capital Gains Tax (CGT) rates—from 10% to 18% for lower and from 20% to 24% for higher rates—is intended to contribute more revenue to the public purse. However, he notes this will place added pressure on entrepreneurs. “Those in the process of selling all or part of their business will now likely look to accelerate those exit plans before the rise kicks in. This could lead to a busy season for deal advisors and companies such as ourselves as business owners look to quickly lock in gains before the changes take effect,” Dundas explains.
Fuel Duty Freeze Offers Fleets Temporary Relief
Paul Holland, Managing Director for UK/ANZ Fleet at Corpay, welcomed the year-long freeze on fuel duty rates and the extended 5p reduction, which he calls “welcome news for all road users but in particular those companies with fleets.” Holland also pointed out the statement’s support for EV adoption but critiqued the lack of detail on fiscal policies for EV drivers. “With the 2035 cut-off for the sale of new EVs looming, it’s critical that the statement provides clear guidance on what the roadmap looks like for the future of EVs,” Holland emphasized, underscoring the need for incentives to encourage the transition to electric fleets, which could save businesses on fuel and road tax.
Looking Ahead: Infrastructure Investment and EV Roadmaps
The budget’s infrastructure investment announcements, particularly in transportation, were welcomed as essential for economic stability and growth. Holland pointed out that “transport and logistics are at the heart of the country’s economy,” and noted the importance of stable transportation networks for operational continuity.
Small Businesses Feel the Strain of Rising Employer Costs.
The Founder of The Director’s Helpline, Jonathan Cooper, described the budget as one that “places a further cost burden on British business.” He highlighted the rise in employer National Insurance contributions, predicting this will lead to increased insolvencies among smaller firms. Cooper anticipates that “at The Director’s Helpline, we expect to receive an increased number of calls from directors over the coming months seeking reassurance and guidance as to how these changes will impact them.”
Echoing this sentiment, Stuart Winstone, CEO of SilverDoor, acknowledged that the increased National Living Wage and rise in employer National Insurance contributions will be challenging for small businesses. “These changes will increase costs for SMEs, likely forcing some to offset the hikes by reconsidering pay raises,” Winstone stated. He sees a possible pivot toward automation as a cost-saving solution. Additionally, while the freeze on corporation tax at 25% provides some stability, businesses may have to reevaluate their investment strategies amid these rising costs.
Mixed Impacts on SMEs: Employment Allowance and National Insurance Adjustments
The Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie, acknowledged the positive impact of the increased employment allowance, which allows smaller businesses to reduce their National Insurance liability. “Increasing the employment allowance for small businesses by a record amount is a very welcome move,” she noted, adding that it will protect some smaller employers from “jobs tax.” However, McKenzie cautioned that larger SMEs will still struggle with rising employer National Insurance on top of other costs. She hopes the new small business strategy paper will continue to prioritise SMEs and support future growth.
FreeAgent’s CEO Roan Lavery highlighted potential downsides, especially for SMEs with employees, stating, “Reducing the threshold for Employers’ National Insurance while also raising the National Minimum Wage could have serious implications for many small businesses.” Lavery suggested that without the employment allowance, many small businesses may face difficult choices regarding staffing levels and future expansion plans.
Balancing Budget Pressures and Planning for Growth
For Sabby Gill, CEO of Dext, the budget is a double-edged sword, with increased employer contributions putting pressure on margins. Gill appreciates the commitment to leveling up support nationwide but notes, “This Autumn Budget has presented a robbing Peter to pay Paul scenario for the UK’s SMB community.” He emphasises that businesses must now focus on scenario planning and leverage digital tools for accurate data to adapt swiftly in uncertain times.
With growing concerns over costs, economic pressures, and the transition to sustainable energy, business leaders agree that the coming months will test the resilience and adaptability of the UK’s business community.
