UK businesses brace for impact as tax hikes loom

The Gunnersbury, a pub in West London, is a quintessential example of British pub culture - offering wines, craft beers, live sports broadcasts and occasional live music.

Originally a Victorian landmark, it evolved through several identities. Many Londoners may still remember it as The John Bull, a hub for the vibrant rock music scene that in its heyday hosted iconic bands including The Who, T. Rex and Thin Lizzy.

Like many other pubs, long considered pillars of British community life, The Gunnersbury has felt the pinch of the Autumn Budget set to take effect in April.

Pub owner Richard Mogliany estimates the tax changes could add nearly $3,000 to his monthly cost due to rises in contributions to each employee's social security tax, known in the UK as National Insurance (NI).

"The Autumn Budget started to impact the minute the government started talking about doom and gloom three months before the autumn budget. And that has impacted people's spending habits to the extent where it's already impacted businesses like arts and hospitality across the UK," Mogliany tells CGTN.

"Quite what happens going forward is difficult to discern or understand, given the thresholds on the NI rising, but the contributions rising as well."

The owner said he is still repaying COVID-era loans and the financial pressures due to the rise in national insurance contributions (NICs) does affect his future hiring plans. 

"We'd like to hire two people but it's probably more financially sensible for us to hire in as and when we need," adds Mogliany. "The VAT should reduce to 17.5 percent. That would level things up in our opinion."

Broader implications for small-and medium-sized businesses

The latest Autumn Budget, introduced by the UK's finance minister Rachel Reeves, increases employer NICs from 13.8 percent to 15 percent and lowers the threshold for employee earnings subject to NO from around $12,000 to $6,300 annually.

The government argues the measures are vital to address a "black hole" of about $50 billion in public finances and the tax change aims to put public finances "on a firm footing".

However, many in the hospitality sector, including small businesses, worry the changes will exacerbate financial challenges already threatening their survival and push them to the brink.

The Night Time Industries Association (NTIA), which conducted a survey among over 500 of its members, reveals that 90 percent of businesses in the sector are experiencing financial strain. The association's CEO Michael Kill called the Autumn Budget "a death sentence for many night-time economy businesses across the UK."

"This sector, which contributes over £136billion to the economy and employs over two million people - especially young people under 30 - is being pushed to the brink," said Kill.

Another survey conducted by Institute of Directors - a British organisation that represents company directors - indicates that 83 percent of respondents expect their NI bills will increase, with half planning to lessen pay rises and 43 percent expected to reduce employment.

Rachel Reeves defends Autumn Budget

Chancellor Rachel Reeves has defended the budget as a necessary step to secure the UK's economic future, vowing not to raise taxes again during this Parliament.

"Public services now need to live within their means because I'm really clear, I'm not coming back with more borrowing or more taxes. And that is why this budget we did wipe the slate clean to put public finances and public services on a firm footing. And as a result, we won't have to do a budget like this ever again," said Reeves in November at the Confederation of British Industry annual conference.

In addition, to offset rising costs, businesses will be able to claim up to about $13,000 under the Employer’s Allowance, nearly double the current amount.

Neil Insull, a tax partner at Blick Rothenberg, notes that while the Employer's Allowance is helpful, it benefits only a small segment of businesses.

"If you look at an employer with five or fewer employees, they actually may not be paying NICs after April 25," says Insull. "There is a very small segment of the employer population in the UK which will probably see a decrease in their NIC bills."

'UK's tax rates remain competitive'

Even with planned increase to 15 percent in April 2025, the UK's employer NICs rate is in fact lower compared to other European countries, the average of which stands at about 20 percent.

"I suppose the good news for the UK in terms of job creation is that if we were to compare this with other countries – particularly in Europe such as France and Belgium and Italy – the social security costs, or the NIC costs as we call them here, those are comparatively lower here," he says.

"But if this continues and there's extra taxes on employers, then those advantages diminish and fall away."

Still, Reeves' pledge of not raising taxes further during this Parliament has been met with skepticism. Insull notes such promises are difficult to uphold so early in a parliamentary term.

For now, businesses like The Gunnersbury can only brace for the impact, navigating rising costs while hoping for the promised brighter economic days ahead.