How will the October Budget affect struggling businesses? – London Business News | Londonlovesbusiness.com

On the 30 October, Chancellor, Rachel Reeves is set to announce Labour’s first budget in 15 years.

With the fiscal event set against the backdrop of a £22 billion ‘black hole’ in public spending, speculation is mounting regarding what measures are going to be set out.

Ahead of the October budget, Keith Steven, managing director of Company Rescue, has predicted how certain measures could affect struggling businesses.

National Insurance

When a company goes “bust” it is often the case that the biggest creditor is HMRC. It is currently estimated that there is some £40bn of taxes owed to HMRC by struggling companies.

The changes set to be introduced in the October budget may make it more likely that businesses will become insolvent. One of the main reasons for this is a rise in employers’ national insurance contributions. Unlike capital gains tax (CGT), that is levied on profits made on asset sales, i.e. companies that are not struggling, any increase in employers’ contributions are paid irrespective of the financial state of the company.

This is likely to put huge pressure on. What is more, employers’ national insurance (NI) is a tax that is paid in “real time” i.e. within 30 days from the moment an employee is paid. VAT and CGT are not paid until between 3 to 18 months later. The government may have said it won’t raise taxes on working people, but it is set to raise taxes on the very people that provide “working people”. The employers!

Loss of ability to fire and rehire

This practice does quite rightly, in some cases seem unfair, especially if it is used to just boost profits. However, if a business is under critical distress, then it needs to have the ability to lay off workers or drastically reduce hours. Ultimately, a lot of what insolvency practitioners do is to try and save companies and save jobs.

Fuel duty

It is often the case that companies with cash flow problems are unlikely to be able to purchase more fuel-efficient vehicles to their fleet. Profitable companies can offset these rises against profits, whereas those making losses will just see their losses rise and threaten insolvency. During the last fuel price spike, we saw increased enquiries from Road Transport hauliers.

Current economy 

Leading up to the budget, the economy has suffered due to the incredibly negative statements of the Chancellor and Keir Starmer with their gloomy predictions, black holes and “this is going to hurt” narrative. We have seen an uptick in enquiries from companies that have struggled these last few weeks due to a lack of confidence in the business environment.

This has actually eclipsed the few weeks after the Truss mini-budget, which had a broader impact on the markets and worried households needing to get mortgages.

Minimum wage

An increase in the minimum wage will disproportionately affect already struggling businesses as they will have little or no headroom to absorb the increase. Yes, they could increase their prices. Struggling businesses are often more nervous about raising prices than more profitable ones as any loss of a customer could spell the end.

Day one employment rights

Whilst this may not seem to be relevant to struggling businesses with established staff, it may hinder the ability for companies to radically restructure their workforce to try and cut costs.

It should be noted that staff made redundant during an insolvency event such as Administration/liquidation or CVA will be able to claim from the government money owed in lieu of notice and redundancy payments. So, this additional cost will be borne by the government not by the insolvent company.