Rachel Reeves’ tax and spend Budget represents a “catastrophe” for people earning minimum wage and a hammer blow for Britain’s businesses, a financial expert has warned.
And Bob Lyddon also scoffed at the Chancellor’s claim that her decision to increase the National Insurance Contributions of employers will rake in £25billion – although he said Ms Reeves would press ahead with a massive increase in public spending regardless.
Mr Lyddon, the founder of Lyddon Consulting Services, was speaking in response to Ms Reeves eagerly awaited financial statement in the House of Commons yesterday.
Key announcements include The Budget measures include increasing capital gains tax by £2.5 billion, with the lower rate to rise from 10% to 18% and the higher rate from 20% to 24%; changes to inheritance tax, including bringing pension pots within the tax from April 2027, and reducing reliefs for agricultural and business property, raising a total of £2 billion a year.
The NIC rate for employers will increase by 1.2 percentage points to 15% from April 2025, with payments starting when an employee earns £5,000, down from the current £9,100
Mr Lyddon did not hold back with his criticism, telling Express.co.uk: “The Budget will be a catastrophe for employed jobs, especially Minimum Wage jobs.
“Rachel Reeves has greatly increased the cost to businesses of having employees.
“Angela Rayner’s upcoming measures to improve employee rights will also impose cost.
“If all of these added costs are passed on to the businesses’ customers, that pushes inflation back up again. If the costs cannot be passed on, then it puts the business itself under pressure.”
At the very least, businesses were now going to pause hiring new staff, delay investments which might have required new staff, and give
consideration to their existing staffing levels before the new rights and the higher employment costs come into effect, Mr Lyddon pointed out.
He explained: “That is all an automatic dampener on national economic growth, but it also has negative consequences for employees and business owners alike.”
The latter were in effect being “pushed them into a corner” but such extra costs, Mr Lyddon predicted.
He added: “The businesses’ owners are going to have to consider wielding the axe to their staffing, before the axe falls on their own heads.
“Reeves and Rayner seem to believe that UK businesses are so prosperous that they can absorb meaningful extra dollops of costs, but you can be sure that owners do not see it the same way.”
Mr Lyddon cited as an example a notional business with 30 employees, 20 of whom are on £2,000 a month, five of whom were aged over 21 and on the Minimum Wage, and five of whom were aged between 18 and 21 and likewise on the Minimum Wage.
He said: “The Minimum Wage earners are taken to be on 30 hours/week contracts. Even though the annual employment allowance (paid out by the government when the business’ total Employer National Insurance liability is below £100,000) will rise from £5,000 to £10,000, this business’ annual payroll will increase by 5.3% from £667,780 to £703,435, after they have cashed in the £10,000 annual employment allowance, their total liability being over £10,000 but less than £100,000.”
The 5.3% increase was just because of the increases in the Minimum Wage and Employer National Insurance, with far more of the pay of the Minimum Wage employees now attract the new Employer National Insurance rate of 15%.
Mr Lyddon asked: “Will the other 20 employees just sit there and be happy to have their wages frozen just so that things don’t get too tough for the employer?
“So that the colleagues on the Minimum Wage can go home with 7-16% extra, with the biggest increase going to the youngest, with the shortest tenure and probably the least skills?
“The question for the business becomes simply who do you get rid of. The cheapest, Minimum Wage ones – short service, low severance pay, but also a lower monthly saving? Or the older ones on better wages – bigger monthly saving as against higher severance, and loss of expertise – but
how often do they go sick and are they really up to it any more? Or some in the middle? Or 10% from each category?
“Or why don’t we get a pre-pack administration, get shot of all of them and re-hire to a different mix: 50% on minimum wage, 50% on above minimum wage but at most £1,750 a month compared to £2,000 now? Or just withdraw our equity and shut down?”
Moving on to figures outlined by Ms Reeves during the course of yesterday’s speech, Mr Lyddon added: “There is no chance at all of the increased levels of Employer National Insurance bringing in the £25 billion Reeves believes she has already banked.
“That and the huge increases in percentage terms in the Minimum Wage will simply result in redundancies and lower job creation, hitting hardest the young, just out of school with modest qualifications, and those who need the flexibility that often goes with Minimum Wage work – because they have caring responsibilities, because for some reason a full-time job of 35 hours/week does not work or whatever it is.
“The £25 billion won’t come in but sure as hell the extra spending Reeves has announced will go out – then there really will be a gaping black hole in the public finances, with no Tories lining up to take the blame, and just Labour’s customary legacies: a disastrous level of public debt and high unemployment.”
The independent Office for Budget Responsibility (OBR) forecasts that by 2026-27 some 76% of the total cost of the NIC increase will be passed on through lower real wages – a combination of pay cuts and increased prices.
The measure could also lead to the equivalent of around 50,000 average-hour jobs being lost, the watchdog said.
Ms Reeves accepted that employees will bear some of the burden of increasing employer’s national insurance rates.
She told the News Agents podcast: “The way I have structured it is that businesses pay that tax.
“I accept that some of that burden will be felt on employees, but if I had increased employee national insurance, or income tax, all of the burden would have been felt by working people.”
