What will the Budget mean for scale-up businesses?

Reflecting on the Chancellor of the Exchequer Rachel Reeves’ first Budget last Thursday (30 October 2024) and what it will mean for growing businesses in Scotland and throughout the UK, our Managing Director Sean Mavor comments:

“A key implication for Framework’s client base of scale-up businesses is likely to be significant pressure to put up wages, raise prices, or both, because of the increases from April 2025 in the National Living Wage (by 6.7%) and the National Minimum Wage (for 18–20-year-olds by 16.3% and for under-18s and apprentices by 18%) as well as Employer’s National Insurance (from 13.8% to 15%, with the per-employee threshold at which employers start to pay it reduced from £9,100 to £5,000 per year). While increasing the employment allowance from £5,000 to £10,500 will assist some smaller businesses, it will not be of much help to most scale-ups.

In addition to these increased wage costs, there is likely to be a domino effect on higher pay bands too, possibly pushing the entire wage bill up by around 7% . It will also mean that trainees will become more expensive, potentially leading to fewer being taken on, with consequences for future workforce development.

While some larger businesses may be able to find ways to absorb these additional wage costs, most small to medium-sized scale-up businesses may not have the same wiggle room, especially if their customers are particularly sensitive to changes in the price of their products and services.

Some businesses in lower-margin, labour-intensive sectors, such as hospitality, retail and health and beauty may cut back on the number of people they employ, with adverse implications for customer service and staff satisfaction and wellbeing, and putting the longer-term viability of the business at risk.

For charities and sports governing bodies, the additional cost of Employer’s National Insurance of up to £610 per employee, with the threshold reduction also meaning that they will now have to pay this tax for most part-time staff too, could have profound adverse effects for their operations. Their grant income is highly unlikely to grow by the amount needed to offset these additional costs; on the contrary, it is likely to be more difficult to secure funding going forward. In addition, putting up prices is not likely to be possible for many charities. So, already squeezed, they will be forced to do more with less, or take the difficult decision to reduce their service levels, negatively affecting service users.

So what can scale-up businesses do in response to the changes announced in the Budget? Firstly, serious consideration should be given, where possible, to pricing options and the extent to which prices could or should be increased, with proactive planning ahead recommended rather than only reacting to ad hoc external events. Secondly, there may be more incentive for businesses to consider how to improve productivity, including the increased use of technology to enhance business efficiency. And thirdly, more outsourcing of certain functions - such as marketing, creative services, accounting and other professional services - may also be a cost-effective, value-adding route for some businesses to consider.”

If you would like to discuss any of the above with us, please get in touch.

Read also this excellent commentary on the Budget by our client 56 Degrees North.