How the autumn budget affects you

At the end of October, the Labour party delivered its first budget in 14 years. Whatever your politics, it was a historic moment and a definite change from what’s come previously. In this latest budget, the government made clear that it would avoid austerity and wouldn’t raise taxes on ‘working people’.

The Chancellor’s financial plans are extremely relevant for small businesses, with major announcements on minimum wage, National Insurance, business rates and more. Let’s explore the key updates, and crucially, what that could mean for your wallet.

National Living Wage increase

Ahead of the Budget release, the government confirmed that the national living wage will rise by 6.7% to £12.21 per hour, starting in April 2025. This could mean an additional £1,400 for low-income earners. And younger workers between 18 and 20 will have a larger increase of 16.3%, guaranteeing a minimum pay of £10 per hour.

While this is good news for employees it presents challenges for small businesses, especially those already operating on thin margins. It could mean that if you’re running an SME, you’re rethinking any hiring plans or wondering how you’ll be able to manage costs in other ways.

Read more about the minimum wage increase.

Income Tax and National Insurance

Income tax and NI contributions are based on how much you earn. Sticking to its promise not to raise tax on ‘working people’, Labour hasn’t raised individual income tax or National Insurance (NI) rates.

In this budget, the Chancellor actually announced that the current freeze on the income thresholds will end. These thresholds will now rise in line with inflation after 2028, essentially preventing more people being dragged into higher tax bands as their wages rise.

Employer National Insurance contributions

But what about contributions from employers? Well, employer NI contributions will increase by 1.2%, bringing them to 15% from April 2025. The secondary threshold, the amount that employees can earn before their employers must start contributing towards their NI, will be reduced to £5,000 from £9,100.

Rachel Reeves acknowledged the pressures on businesses but emphasised that this adjustment would bring in £25 billion each year to support public services. For SMEs, particularly in sectors like hospitality with high staffing costs, this rise may lead to difficult decisions around workforce levels.

However, a higher Employment Allowance from £5,000 to £10,100 aims to protect the smallest businesses, exempting about 865,000 employers from NI contributions next year. The Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie, said: “More than doubling it, from £5,000 to £10,500, will shield the smallest employers from the jobs tax, and therefore is a pro-jobs prioritisation in a tough budget.”

Business taxes

Business rates, the tax of property used for business purposes, are designed to help fund services in your local authority. And to support high street businesses, Labour announced a 40% relief on business rates for the retail, hospitality, and leisure sectors, with a cap of £110,000 per business. Additionally, the small business tax multiplier remains frozen at 49.9p.

The Budget also included a rise to Capital Gains Tax (CGT) rates on assets sold for profit. The lower CGT rate will rise from 10% to 18%, and the higher rate will increase from 20% to 24%, though rates for selling properties will remain unchanged. And the main rate of corporation tax, paid by businesses on taxable profits over £250,000, will stay at 25% until next election.

Stamp duty

The budget included a rise in stamp duty on the purchase of second homes, buy-to-let residential properties, and companies purchasing residential property. It has risen from 3% to 5%.

On the one hand, it means that those who can afford multiple properties are shouldering the burden of a higher tax. However, it could lead to a squeeze on the number of rental homes available and even higher rents for current tenants.

Fuel and drink

After speculation around a possible fuel duty increase, Reeves committed to extending the freeze and maintaining the 5p per litre cut for an additional year. Fuel duty has been frozen since 2011.

For pubs, bars, and restaurants the duty on draft alcoholic drinks, will decrease by 1.7% from February. Or as the Chancellor put it; “it’s a penny off a pint in the pub”. But by contrast, the UK’s alcohol duty for “non-draught” drinks like wine and spirits will rise in line with the Retail Price Index (RPI) measure of inflation.

The tax on tobacco will rise by 2% above inflation, and 10% above for hand-rolling tobacco. Plus, a flat rate of duty will apply to all vaping liquid from October 2026, at £2.20 per 10ml vaping liquid.

The state pension

Another key announcement in this budget was that the state pension will rise in line with average earnings and increase by 4.1% in April. This means that the full, new flat-rate state pension, for those who reached state pension age after April 2016, is expected to rise to £230.25 a week. That’s an extra £472 a year, compared to the current rate.

The full, old basic rate, for those who reached state pension age before April 2016, is expected to go up to £176.45 per week, or an extra £363 a year compared to now.

What’s the verdict?

This budget was delivered in difficult circumstances, and unsurprisingly set out a range of major tax increases. The vast majority of which will fall on businesses and the increases in NI contributions could place additional pressure on those with slim margins.

However, the government’s efforts to shield the smallest businesses offers some relief in a challenging economic picture. Many SMEs were looking for reassurance and have found it in the extension of business rate relief and the freeze on income tax thresholds.

The true test of this budget will be whether small businesses can grow and help transform the economy. Building a business involves a significant element of risk and personal, as well as financial, investment. So for the economy to grow, we need more people to be encouraged to take that leap and, in turn, create jobs, opportunities and prosperity in all communities across the country. 

Remember, our business insurance experts at Howden are here to help and support you with your business needs. We can help find you specialist cover, perfectly tailored to your unique circumstances.

Simply find your local business branch, and give our team a ring or visit in person.

Sources: BBC, Federation of Small Businesses, Simply Business, Small Business.co.uk

This is a marketing blog by Howden.