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Budget 2024: if Minimum Wage is increased, "the maths isn't mathing"

ended 29. October 2024

If the Minimum Wage and Employers' NI are increased in today's Budget, business owners have said it may see them have to rethink their entire models as the numbers simply won't stack up. Taking on employed staff may no longer make sense financially, while further collateral damage from the fiscal event could be the younger workforce — as “a gamble on apprentices and trainees especially may just be too expensive and the HR too difficult to navigate for employers to have the appetite to bother”. As one expert put it, “'the maths isn't mathing”. 

One business owner, Stephen Perkins, managing director of Yellow Brick Mortgages, said: “The Budget is shaping up to be a perfect poisoned cocktail. Increased employer NI costs, increased employee rights and higher taxes for business owners will stifle the economy and increase inflation. Hardly the recipe that was required.”

Chris Steele, founder of myTribe Insurance, said increased employers' NI could see him rethink his entire employment model: "As a small business, we've grown by working with specialist freelancers located around the world. This year we've started hiring full-time employees to complement this model, but if there is hike in employers' NI tomorrow, it'll force us to consider whether growing a larger employed team is right for our business."

Mark Scott, director at Positive Advisers, warned the Government that the measures it looks set to announce will slow the economy: “With the increased costs and changes to employment laws, business owners will think twice before trying to grow their companies and workforce. This will slow the economy.”

Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, was withering: “The government appear to have engaged in a game of 'pass the parcel of fiscal responsibility', and small business owners are now unwitting participants. For weeks, Chancellor Reeves has desperately tried to present the forthcoming budget as a masterclass in economic policy, but this latest focus on a minimum wage uplift, combined with the previous suggestions of an employer’s NI hike, has revealed this as nothing more than an intricate exercise in buck-passing, artfully disguised as financial prudence.”

Meanwhile, Debbie Porter, managing director at Destination Digital Marketing, said increasing the minimum wage will ironically be to the detriment of those on the minimum wage: “A 6% rise in minimum wage will unwittingly cause pain for those in minimum wage jobs. Where a business employs minimum wage people, it is usually to fulfill lower skilled jobs, or to give young people with no experience a chance without impacting the overall profitability of the company in order to provide that chance. A 6% rise would have minimum wage workers on a £23,600 a year salary based on a 37.5 hours a week job. With the standard 'a third: a third: a third' pricing model, this would mean this employee would have to be driving £70,800 revenue to avoid becoming a loss maker for the business employing them. To coin a phrase, 'the maths isn't mathing'.”

Additional views below.
 

10 responses from the Newspage community

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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
The government appear to have engaged in a game of 'pass the parcel of fiscal responsibility', and small business owners are now unwitting participants. For weeks, Chancellor Reeves has desperately tried to present the forthcoming budget as a masterclass in economic policy, but this latest focus on a minimum wage uplift, combined with the previous suggestions of an employer’s NI hike, has revealed this as nothing more than an intricate exercise in buck-passing, artfully disguised as financial prudence. The economic burden of these proposals for SMEs cannot be overstated, and this comes at a time when many businesses are already facing severe cost pressures and a complete lack of confidence in the UK’s outlook. We in the business community were hopeful for a period of stability after years of inflationary concerns and growth worries. Yet we now find ourselves in the crosshairs at a time when fostering confidence is paramount in this increasingly hostile economic landscape.
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Chris Steele
Founder at myTribe Insurance
As a small business, we've grown by working with specialist freelancers located around the world. This year we've started hiring full time employees,to complement this model, but if there is hike in employers' NI tomorrow, it'll force us to consider whether growing a larger employed team is right for our business.
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Mark Scott
Director and IFA at Positive Advisers Ltd
They must increase the minimum wage to close the growing belief that Labour favours governmental workers and unions over private sector workers. With the increased costs and changes to employment laws, business owners will think twice before trying to grow their companies and workforce. This will slow the economy. My biggest worry is how these extra costs on businesses will affect inflation. Big monopolistic employers will increase prices to counter the cost increase, and smaller businesses will follow. This type of inflation will be unique to the UK and badly damaging to the country.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Minimum wage increases tend to uplift all wages not just those on the minimum wage. The Budget is shaping up to be a perfect poisoned cocktail. Increased employer NI costs, increased employee rights and higher taxes for business owners will stifle the economy and increase inflation. Hardly the recipe that was required.
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David Stirling
Independent Financial Advisor at Mint Wealth
This has the potential to be a three-prong assault on SME owners with the introduction of the Workers Rights Bill, a National Insurance hike and now a raise in minimum wage. We are plunging into an era of massive taxation on businesses which will likely see the weakest fold, to the detriment of the wider economy. Whilst employees do deserve protection, this government does seem to be quite short-sighted as to the longer-term impact these policies will have on small businesses. This will definitely lead to restricted recruitment plans for businesses, as a gamble on apprentices and trainees especially may just be too expensive and the HR too difficult to navigate for employers to have the appetite to bother.
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Justin Moy
Managing Director at EHF Mortgages
Company owners considering growing their business with additional staff must rethink their strategy. Increased minimum wage costs, increased NI contributions and the impending change to employee rights will only deter that growth or simply those increased costs will be passed onto the end consumer. This will inevitably mean more unemployment and inflationary pressure in the future, by-products that no one wants.
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Craig Fish
Director at Lodestone Mortgages
This is deeply concerning on multiple levels. For businesses, a 6% minimum wage increase, coupled with higher National Insurance contributions, would squeeze already thin profit margins. Ultimately, consumers will bear the brunt of these changes, driving up costs and worsening inflation. With inflationary pressures still looming over the UK economy, these measures could turn an already challenging situation into a full-blown storm, pushing us further away from the economic recovery and lower rates that many were hoping for. If these rumours prove true, it will be a major setback.
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Dariusz Karpowicz
Director at Albion Financial Advice
The anticipated 6% minimum wage hike, coupled with increased employers' NI, isn't just another number, it's a potential gamechanger for small business owners. For many of us running modest enterprises, this feels like trying to juggle while walking a tightrope in strong winds.
While supporting fair wages is crucial, the timing and combination of these increases could force many small businesses to rethink their hiring strategies. The government's apparent disconnect from small business realities is concerning. It's not just about paying more, it's about sustaining viable operations. This could be the difference between expanding and simply surviving for many small enterprises. Perhaps it's time for Westminster to spend a day in a small business owner's shoes before making these sweeping decisions.
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Debbie Porter
Managing Director at Destination Digital Marketing
A 6% rise in minimum wage will unwittingly cause pain for those in minimum wage jobs. Where a business employs minimum wage people, it is usually to fulfill lower skilled jobs, or to give young people with no experience a chance without impacting the overall profitability of the company in order to provide that chance. A 6% rise would have minimum wage workers on a £23,600 a year salary based on a 37.5 hours a week job. With the standard 'a third: a third: a third' pricing model, this would mean this employee would have to be driving £70,800 revenue to avoid becoming a loss maker for the business employing them. To coin a phrase, 'the maths isn't mathing'.
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Sam Kirk
Managing Director at J-Flex Rubber Products
"Labour is the party of business", Keir Starmer proudly stated in February, and in the last week or so Labour’s hesitation to clarify whether business owners can be considered working class has left many business owners feeling both frustrated and insulted. Now, to add insult to injury, many small businesses are faced with unbudgeted increases to their overhead structures that may potentially lead to closures if companies aren't able to pass on those additional costs.