Here we are, a few days after Labour's first budget in nearly 15 years, and they didn’t disappoint. They teased us and played with us, but in the end, they really came through—there were tax rises for everyone! Woo Hoo!
They also managed to pretend they were increasing defence spending (by a hefty £2.9bn) while simultaneously promising Ukraine another £3bn P/a. For those unsure, that means a real-term cut to our defence budget of at least £100m.
The post-budget chatter has, however, mostly centred around two things: farmers and business.
This is because of three increases in the budget, namely changes to national insurance, business rates and inheritance tax.
You might remember that in their 2024 manifesto Labour had a transparently vague commitment to not raise the ‘direct taxes’ of ‘working people’. Everyone serious knew to brace themselves as the taxes on working people would inevitably be raised by stealth, and part of this is the employer national insurance hike.
You may or may not know that alongside your (employee) national insurance payments, your employer is obliged to contribute some national insurance payments, too. Raising your contributions would have been a clear and direct violation of their manifesto pledge, so Labour have instead opted for an unclear and indirect violation of their manifesto pledge in the form of increased employer NI contributions (NICs).
What this means in plain English is that small and medium enterprises will have a substantial direct increase on their costs. According to www.tax.org.uk, “For someone earning £20,000 in 2025-26, their employer will pay £2,250 in secondary Class 1 NICs. That is an increase of £746 (or nearly 50%) over current rates”.
If that company has 10 employees earning £20,000, they will have to find an additional £7,460 per year just to pay the bill.
Additionally, this employer contribution increase comes alongside changes to business rate relief, particularly for businesses in the retail, hospitality and leisure sectors. Essentially, the business rates (a tax paid by businesses just for existing) for businesses in these sectors are currently subsidised by up to 75%; on the 1st April 2025, that will drop to 40%.
In other words, on top of employer NICs increasing by up to 50%, their business rates will increase by 35% (although some have it as high as 140%). Costs for small and medium retail, hospitality and leisure businesses (think retail shops, coffee shops and cafes, pubs and restaurants, cinemas and swimming baths) are about to skyrocket.
That's only two courses though, right? Where's the dessert? Well, look no further, because alongside these massive costs for businesses, we are also seeing a minimum wage increase and a corporation tax increase. Two for one!
All this begs the question, as costs increase so dramatically for small and medium businesses, where do you think the money will be found to pay these huge new costs? That's right, products and services. The cost of things will rise to meet these new business expenses. Your coffee will get more expensive, your vapes will get a lot more expensive, your cinema visit will get a lot more expensive.
You see, wherever we see costs rise for small business owners it also must follow that prices rise. When prices rise, things get more expensive for you, the working person.
Ignoring all the malice behind stinging businesses so heavily, these tax rises will squeeze your pay packet seemingly without anyone touching it. Your money won’t go as far as people try to offset the impact of these huge fixed cost increases.
That 1p reduction in the price of a pint of cask ale (no, that isn’t a joke, they genuinely celebrated it) will disappear into pubs and restaurants looking to cover the new increases in business rates, NICs, corporation tax and wages.
If you believe prices are about to drop, think again.
Which neatly brings us to farmers. Notwithstanding other areas of tax already discussed, and not to get too deep into the inheritance tax nuances/ thresholds, farmers are in trouble.
Changes to inheritance tax allowances mean that as of next year, young second-generation-plus farmers will need to find a substantial amount of money to inherit their farm.
Essentially, inheritance tax looks at the value of everything being bequeathed to someone, values it, reduces that value based on some allowances and other quirks, then asks for 40% of the remainder.
Lots of farms include farmhouses, out buildings and, to be anything near profitable, a good amount of land. The value of this stuff adds up really quickly and means that many farmers will now be asked to pay a substantial amount of money if they want to keep their farm.
Realistically, considering almost all farms are very cash poor, this will mean selling some or all of the farm just to pay the inheritance tax bill. Many will have to sell their entire lives just to pay tax.
Some people are arguing this will only affect millionaires who buy farms to try and escape paying inheritance tax by sinking all their money into an asset that, until the budget, was deductible from the value of a bequeathed estate, but these people are wrong.
For you see, farmers have no control- and no interest- over the value of their assets. The fact that isolated detached property has become extremely desirable is not because of the efforts of farmers. The fact that land is an increasingly scarce and valuable commodity because so many politicians are pushing for huge housebuilding projects is not because of the efforts of farmers. The fact that many out houses are just barn conversions waiting to happen is not because of the efforts of farmers.
Many farmers, even those in the poorest areas, are sat on a farm that makes very little money but has an asset value of often approaching or exceeding 7 figures. The thing is, they don’t want the money, they want the farm, because it is their way of life, because it is intergenerational, because it is all they know.
Which means introducing these new rules, which remove much of the agricultural land relief exemption which used to protect farms from inheritance tax, is only going to affect those most likely to want to produce food and live as a farmer. It is not going to target the tax dodging ultra wealthy.
In fact, the millionaire land speculators are way more likely to be able to afford both the inheritance tax bill and to hold onto the assets, meaning they are also most likely to be able to expand their land holdings by taking advantage of the smaller farmers who are forced to sell.
And take a moment to think- who are the farmers going to be selling their land to? It will be billion pound developers looking to build housing estates, or other multi millionaire farmers looking to increase their holdings hoping it’ll increase in value and make them a profit.
It certainly won’t be prospective farmers, who have been looking to get into the small holding market but were prevented by greedy multi generational farmers. This decision isn’t going to increase domestic food production; in fact, it will almost certainly do the opposite, as the final straw breaks the camels back and farmers pre-emptively sell up because there’s no point holding on.
Lastly, if you are of the opinion this inheritance tax raid won’t affect you, think again. They will continually look to raise more capital from this abhorrent tax, and at a time where assets are appreciating almost exponentially (the average house price in this country is approaching £300k now), it won’t be long until your average Brit is absorbed into the inheritance tax calamity.
Needless to say, this budget was a vindictive and misleading one, which will invariably hit working people in their wallets. This first Labour budget has shown the country how little imagination Labour has developed over the last 14 years. It shows us that manifestos, promises and pledges are not worth the paper they’re printed on. It shows us that with Labour, the politics of big state, high tax, low innovation is still core to their philosophy.
They say they are looking to make Britain an attractive place to start a business, but are removing all incentives for businesses to grow or develop. They say they want hard work to pay but look to take as much as they can from as many people as possible. Not to mention the fact they claim to care about the working class but are pricing working class people out of pubs, restaurants and other recreational activities.
In all of this, the saddest thing is probably the fact that this budget, the manifesto pledges being as close to broken as possible and the fact that they targeted productivity and success weren’t surprising to anyone.
5 more years of this? Strap in.
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