IHT raid will hit family businesses

Industry leaders have voiced concern over changes to inheritance tax, saying measures set out in the Budget could prompt a wave of closures and job losses and have a negative affect on up to 140,000 family-owned businesses. The Budget introduced a £1m cap on tax-free business property relief, significantly reducing the benefits for entrepreneurs passing their firms to their children. Sir James Wates, chairman of Family Business UK, labelled the changes as “economic illiteracy,” warning that they could lead to closures and job losses. He said: “In the real world businesses will shrink.” Analysis carried out by CBI Economics earlier this year found that completely scrapping tax relief for passing on businesses would have led to £29bn of damage and 391,000 job losses. While the impact of the changes delivered in last week’s Budget will be less severe, experts have warned that the £1m cap will only protect the smallest of companies.

Tax rises will hinder investment

Business leaders across the hospitality sector have reportedly warned the Government that the tax rises announced in the Budget will drive up costs and lead to a fall in investment. Morrisons’ chief executive Rami Baitieh has told Business Secretary Jonathan Reynolds that the Budget has exacerbated “an avalanche of costs,” while Kate Nicholls, chief executive of UKHospitality, said “rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.” Rain Newton-Smith, chief executive of the Confederation of British Industry, said a hike in NI contributions, “alongside other increases to the employer cost base,” will “increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.”

OBR: Workers harder hit by NI rise than employers

The Office for Budget Responsibility (OBR) says workers will take most of the hit from an increase to employers’ National Insurance contributions (NICs) announced in the Budget. The OBR has calculated that three quarters of the impact will be felt by employees, with employers likely to hold back on pay rises and hiring due to the increase in wage bills. The OBR’s Prof David Miles told the Treasury Select Committee it was “very plausible” that low-paid workers would be disproportionately affected. As of April, employers will pay NICs at a rate of 15% on salaries above £5,000, up from 13.8% on salaries above £9,100. James Smith, research director at the Resolution Foundation think-tank, has warned that these changes are “definitely a tax on working people.”

Jobless rate set to rise amid NI increase

Experts have warned that the increase in employers’ national insurance contributions (NICs), introduced by Chancellor Rachel Reeves in the recent budget, is likely to lead to a rise in unemployment. The National Institute of Economic and Social Research (NIESR) has criticised the move, labelling it a “tax on jobs.” Professor Stephen Millard, NIESR deputy director for macroeconomic modelling and forecasting, stated that the NICs rise will “reduce job creation over the coming years.” Additionally, NIESR suggests the Chancellor should have raised income tax for the wealthiest and unfrozen income tax thresholds to better support lower-income families.

Cost of long-term sickness could derail economy

The Office for Budget Responsibility (OBR) has warned that Britain’s poor health could result in a £100bn “triple whammy” to public finances. The budget watchdog says this would come from increased NHS and benefits spending, as well as a reduction in the tax base due to a million fewer workers. Long-term sickness, with claims at a record 2.8m, is contributing significantly to the problem, with one in 12 working-age people on incapacity benefits. The OBR highlighted that spending on sickness benefits could rise from £65bn to over £100bn by the end of the parliament, while half of universal credit claims are expected to be for ill-health, up from a third. The OBR also stressed that addressing the issue is critical for the UK’s fiscal sustainability, with effective job support potentially offsetting some costs by reducing reliance on benefits. Richard Hughes, head of the OBR, told the Lords economic affairs committee that the health of the nation had “really big” implications for spending.

Service sector growth stalls

Output from Britain’s service industries expanded at its slowest rate in nearly a year last month, with the S&P Global/Chartered Institute of Procurement and Supply final purchasing managers’ index for the £1.7trn sector dropping from 52.4 to 52.0 in October on an index where a reading above 50 points to growth. Tim Moore, economics director at S&P Global Market Intelligence, attributed the slowdown to “heightened business uncertainty” ahead of the Budget, adding that the “wait for clarity” on government policy ahead of the Budget “was widely reported to have weighed on business confidence and spending.” Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said the slowdown would give the Bank of England’s monetary policy committee “further confidence” to cut interest rates, while Matt Swannell, chief economic adviser to the EY Item Club, said the data was not “a major cause for concern.”

Economists: Rate cut is coming

Analysts expect the Bank of England to cut interest rates this week, with the Bank’s Monetary Policy Committee (MPC) forecast to reduce the benchmark rate from 5% to 4.75%. This would take the base rate to its lowest level since June 2023. Paul Heywood, chief data & analytics officer at credit agency Equifax UK, said: “With inflation below target, a further base rate cut remains the most likely scenario, but consumer affordability pressures won’t disappear overnight and could yet persist for longer.” Looking further ahead, Thomas Pugh, an economist at RSM UK, said: “The big stimulus coming from the Budget, combined with higher employment costs, means inflation will be materially higher in 2025 and 2026, so a December rate cut now looks very unlikely.”

‘Insolvency avoidance scheme’ still active

A scheme that has helped the directors of more than 1,000 struggling companies drop debts is still running, despite Insolvency Service (IS) attempts to shut it down. Officials say a group called Atherton encourages directors battling with company debts to “sell their businesses and avoid liquidation” via a scheme that enables people running struggling companies to distance themselves from a failure. Tax Policy Associates analysis suggests that directors have passed on tens of millions of pounds in debt to Atherton, including money owed to HMRC. The IS closed seven companies that were part of a group that allegedly “deliberately undermined the insolvency regime.”