Survival fears for region’s small firms as ‘crippling’ cost rises loom
- Credit: Danielle Booden
East Anglia’s small business leaders fear costly new government measures could put firms under – unless they are offered help.
With overhead costs rising sharply and one month to go until increases in the National Living Wage (NLW), National Insurance Contributions (NICs) and dividend taxation take effect, the Federation of Small Businesses (FSB) fears many local businesses won’t survive.
The FSB said the increase in employers’ NICs alone would cost small and medium sized enterprises in the East of England more than £430m, while confidence among the region’s small businesses slumps below the UK average, according to its latest small business index survey.
FSB development manager for East Anglia Candy Richards said record inflation was already threatening the viability of many of the region’s small businesses – and now the government was set to introduce “the biggest business tax in history”.
“For many small businesses, the increase in NICs on top of rising costs will be crippling,” she said.
“Slamming small firms with a jobs tax hike will put the brakes on investment, upskilling and growth within our region.
“At its forthcoming Spring Statement, the government can still make a difference by increasing the Employment Allowance to £5,000 and adopting our proposal to increase the threshold for Small Business Rates Relief from £12,000 to at least £25,000.
“Once we reach April, we’ll be faced with rising taxes, an end to business support measures, and mounting inflationary pressure. Many of our local small businesses will simply not survive if the government doesn’t take steps to ease the significant financial pressures they are facing.
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“In the first year of the pandemic, the business community shrank in size by 400,000. Unless the government changes course, history is set to repeat itself.”
She pointed to the fate of hospitality businesses, where customer spending was discretionary and which depended on householders faced pressure from their own rising costs. For those businesses, government increases “could not have come at a worse time”, she said.
The FSB said the country faced an £18bn collective annual increase in dividend taxation and NICs for employers, employees and sole traders.
It is recommending raising the targeted Employment Allowance – which entitles small employers to a discount on their NICs bills – from £4,000 to £5,000 – a measure it estimates would cost less than £500m, or under 3%, of the forecast tax take from the combined hikes.
The organisation claimed the planned 1.25% increase in employer NICs will add more than £3,000 to the annual tax bill of the average SME employer.
On April 1, the National Living Wage will rise from £8.91 to £9.50 for those aged 23-plus while business rates discounts for high street firms in England will drop in value and a lower rate of VAT for hospitality businesses will no longer apply, it said.
The VAT rate was lowered temporarily in 2020 to 5% for tourism and hospitality businesses and was then raised to 12.5% for six months from October 1 to March 31, 2022. The standard rate is 20%.
Meanwhile Office for National Statistics figures last months showed the growth rate for input prices paid by businesses producing goods soared above 13%, it added.
Chancellor Rishi Sunak will deliver his Spring Budget on Wednesday, March 23.