Firms to pay more than half of Budget tax rises

More than half of the tax increases in the budget will be paid for by businesses, with the amount of national insurance paid by employers set to rise by £25bn.

Chancellor of the Exchequer Rachel Reeves has decided that businesses will bear the brunt of a £40bn increase in total taxation by raising national insurance rates and lowering the threshold for employers to start paying premiums.

Small businesses received some exemptions or relief, but businesses overall faced the costs of having to pay higher minimum wages, higher business rates and adapting to new workers’ rights under the new law.

Reeves said raising National Insurance premiums was a “difficult” but right choice to fund public services.

Ahead of the Budget, businesses, especially smaller ones, warned that such additional costs could leave them with less spare cash to hire staff or pay rises, ultimately undermining the government’s aim of growing the UK economy.

But Reeves said the “only way” to drive growth was through investment, warning there were “no shortcuts”.

“We’re asking businesses to contribute more,” Reeves said. “I know the impact of this measure will extend beyond businesses.”

Businesses come in all shapes and sizes, meaning the choices the Chancellor makes in the Budget will affect them differently.

Kate Nicholls, chief executive of the UK hospitality industry, said tax increases would act as a “brake on economic growth” in the UK.

She said: “Businesses operating on tight margins are already grappling with huge increases in employment costs – we are seeing jobs and hours cut, investment slashed, business viability compromised and prices rising.”

• National Insurance: From April, the rate of employer contributions for workers earning more than £175 will rise from 13.8% to 15%. The threshold at which employers start paying tax on each employee’s salary will be reduced from £9,100 per year to £5,000. However, the chancellor said she would extend the employer allowance – the amount employers can claim back from National Insurance bills – from £5,000 to £10,500.

• Minimum wage: From April 2025, the minimum wage (officially known as the “national living wage”) for over-21s will rise from £11.44 to £12.21. For those aged 18 to 20, the minimum wage will rise from £8.60 to £10. Apprentice wages will jump from £6.40 to £7.55 an hour.

• Business rates: The current 75% discount on house prices expires in April 2025 and will be replaced by a 40% discount up to a maximum of £110,000. Business rates apply to most non-domestic properties such as shops, offices, pubs and factories. That still means many businesses will nearly double their operating rates.

• Workers’ rights: According to the government’s own analysis, plans to boost workers’ rights will cost businesses up to £5bn a year to implement. The new measures will disproportionately impact small businesses.

The government promises to be “pro-business” and takes developing the British economy and improving living standards as its main goals.

But businesses warn that imposing tax burdens on them will make it more difficult to invest, hire people and create jobs, ultimately affecting economic growth.

There are also concerns about how higher taxes on businesses will affect the workers they employ.

In some cases, companies can pass on increased costs to customers by raising prices, but workers’ wage increases may be limited as employers seek to save money.

An increase in national insurance may also have an impact on other tax revenues, for example if it results in smaller wage increases. If businesses absorb additional costs, profits may be lower and they may pay less corporate tax.

Large multinationals may be able to afford and absorb additional costs, but smaller independent companies will be hit harder by tax increases.