The recent Autumn Budget included changes that offer some support for working people and public services.
However positive for employees, these changes are likely to have a strong impact on businesses – particularly small and medium enterprises.
Will these increases in business costs and impending changes to employment regulation limit growth and stifle productivity? And what can the government do to support SMEs through the impact of these changes?
National Minimum Wage and National Insurance Contributions.
The budget outlined increases to the National Minimum Wage and employer National Insurance contributions.
Currently, the National Minimum Wage for employees 21 years and older is £11.44. In April 2025, this figure will rise to £12.21.
Employer National Insurance contributions will also increase in 2025. In April 2025, the employer’s NIC rate will rise from 13.8 % to 15%.
These increases will be welcomed by many employees. Not only will they increase monthly take-home amounts, but it will also bring more people into pension savings and increase the pot set aside for retirement.
How will this affect SMEs?
For some SMEs though, these costs may be difficult to absorb. Demanding higher prices for goods or services, accepting lower profits and cutting headcounts are just a few paths businesses may tread to offset additional costs.
How will these changes affect the wider economy and business investment?
The increases to the National Minimum wage and NICs have the potential to negatively impact business investment. Increased wages and employment costs could cause profits to fall. Many firms may be forced to raise prices which in turn will have inflationary impacts.
Will changes to the National Minimum Wage improve productivity?
In the past, small incremental increases to wages – particularly within low-wage sectors have made little to no difference to productivity and employee motivation.
Employees within these industries typically prioritise organisational opportunities for growth and professional development. However, these learning and development opportunities are expensive to design and deliver.
Increases in employment costs may cause some businesses to limit, delay or even cancel plans to implement such learning initiatives – doing nothing for employee morale and business growth.
Plans to modernise businesses may also be limited by these raises. Some businesses may be forced to make difficult decisions around weighing up the costs of implementing automation technologies vs the cost of human employees.
How can the government support business growth?
The government has cited some new initiatives to propel growth. The new Industrial Strategy that includes the Get Britain Working campaign is designed to improve employment activity and support those out of work to get back into paid employment.
Although a step in the right direction, these plans need to target the everyday economy sectors that employ the most workers and not just be limited to a number of high-growth potential industries. In turn, this will help to raise productivity and help support employers to manage the costs of NIC and other raises set out in the budget.
Increasing productivity will depend upon changes to critical policy areas such as skills innovation and business support.
Get Britain Working needs to bring together national and local policy to boost working activity. The government needs to create models that will join up support across employment, health and skills development. For it to succeed, people need to have access to jobs and initiatives that allow them to manage health conditions, provide access to training and facilitate skills development.
Are you a business owner or decision maker that has been affected by the changes to employment costs? Have your hiring plans been put on hold thanks to changes in National Minimum Wage or NI contributions? Let us know in the comments below.
