Rachel Reeves has been warned that she is putting small businesses at risk following her Budget tax changes.
The chancellor unveiled a range of tax hikes and allowance tweaks during her first fiscal statement last week. Senior business leader James Dyson has said her plans to restrict inheritance tax reliefs on farms and family businesses “will be the death of entrepreneurship”.
He said in The Times that Reeves is “killing off established family businesses, and any incentive to start new ones” after she “tightened inheritance tax relief” on business property sales above £1 million and introduced a 20% levy on farms that are passed on.
Other tax rises include a rise in capital gains tax from 10% to 18% for basic rate taxpayers and 20% to 24% for higher earners, as well as a national insurance hike for employers and a higher national minimum wage.
Higher taxes for family businesses
The inheritance tax changes in the Budget will raise £520 million for the Treasury, according to the Office for Budget Responsibility (OBR). But other British entrepreneurs have joined Dyson in criticising the changes.
Lobby group Family Business UK said tens of thousands of family-run businesses and farms will be ruined by this change due to lower levels of inheritance tax relief. Changes that were “a betrayal” that would result in businesses “being closed, sold and jobs lost across the country”.
Minette Batters, former president of the National Farmers’ Union, wrote in the Mail on Sunday: “The changes will destroy communities. It is not good enough to say that farmers could sell a few fields in order to pay the bill. Farms need to be a certain size in order to be viable”.
Higher wage bills
The government also announced that the national living wage would increase by 6.7% from April 2025 to £12.21 per hour. Employer national insurance will rise by 1.2% to 15% from April 2025, while the threshold at which employers start paying NI on each employee’s salary will drop from £9,100 to £5,000.
The Treasury said this would raise £25 billion annually for the government. It is an “unwelcome cost” for many businesses, said Raconteur, and could have a “knock-on effect” if employers reduce pay rises or cut back on hiring. And the employment allowance – a relief on a businesses national insurance bill – will rise to £10,500.
But the OBR forecasts that 60% of the costs from the national insurance increase will be passed on to staff and consumers.
Lack of incentives for entrepreneurs?
The Budget will “do nothing” to encourage people to take the “first step in creating their own ventures”, said Andrew Barclay in The Telegraph. While higher capital gains tax is unlikely to entice investors to “risk their money to fund new ideas”.
But the Institute for Government warned it is “too simple” to divide the country into blocs of businesses and workers as “their interests ultimately merge” and higher near-term growth forecast by the OBR will ultimately “impact business through higher revenues”.