Budget 2013: Effect on Businesses

The Chancellor’s Budget 2013 was announced on Wednesday, and British businesses were given a boost both directly and indirectly.  One of the most manifest ways this was outlined was in changes to National Insurance. When the measures come into effect in April 2014, small to medium enterprises (SME’s) will find that they have less obligations for employee National Insurance Contributions (NIC’s). Seen by the government and economic experts as the force which will give the greatest growth to the stalling UK economy, under the new proposals up to 450,000 SME’s will not pay NIC’s at all.  Being called the Employment Allowance, the Chancellor said in his speech that it is “the largest tax cut in the Budget” and that it is “taking a tax off jobs”. It will also apply to community sports clubs and charities.

Additionally, this will be an automatic rebate, with no administration or paperwork necessary. This new employment set of allowances will overall cut £2,000 from the National Insurance bills of all firms overall. A Treasury brief stated that companies will simply have to inform HMRC, and that it will be “delivered through standard payroll software”.

Many employers, particularly small companies or start up, find NIC’s a heavy levy. Charged at 13.8% of pay, they represent a pseudo tax on hiring an employee, and one of the hidden costs of employment for business.  Many business leaders are glad at the move. With the financial barrier to hiring employees set to disappear, it means that SME’s can hopefully stop unemployment trends by being able take on more staff with less financial consequences. Increased employment will only serve to boost the economy, and increase spending and business potential.  With less NIC’s, this puts less pressure on business, and potentially gives employees more take-home pay, as less will be taken off in NIC deductions. For both employers and employees, this new change is therefore very welcome.

Taking this amidst other measures designed to support businesses, the Federation of Small Businesses (FSB) welcomed the Employment Allowance. FSB chairman John Walker said that “”the Chancellor has pulled out all the stops with a wide-ranging package of measures to support small business… [the measures are] beyond what we were asking for”.

Not all are overall pleased, however, with the Budget proposals.  Mr Osborne made no mention of business rates.  Many firms, in particular retailers who are struggling severely, were hoping the planned rise in rates would be cancelled: “Pressing on with a third successive business rates rise is very disappointing. Freezing rates would have made a real difference to our troubled high streets” stated Helen Dickinson, Director General of The British Retail Consortium.  As it stands, the rates will be rising by over 2%, meaning many businesses will be struggling further after overall rate rises of over 12% in just 3 years.