Steve Jerome
Private Client Director
In the run-up to the 2024 general election, more than 120 business leaders at a range of financial services, retail and manufacturing firms signed a letter endorsing the Labour Party’s economic plans, saying it is “time for a change”.
Having won a historic landslide victory, the hard work now begins as Labour start their mission to “kickstart the economy”.
Sky News reports a surge in optimism in July among the membership of the Institute of Directors (IoD). However, in August, its economic confidence index fell into negative territory over concerns about Labour’s Budget and plans for workers’ rights.
So, what could the new government mean for business?
No increase in Corporation Tax
The 2024 Labour manifesto committed to providing greater stability when it comes to business taxation.
The party plans to cap Corporation Tax at 25% for the entire parliamentary term, to offer certainty to businesses and support long-term planning and investment decisions. Interestingly, they have said that they may reduce the tax if it becomes clear it is posing a risk to the competitiveness of UK businesses.
Labour also intends to retain the full expensing system for capital investments and the Annual Investment Allowance (AIA) for small businesses.
Furthermore, the Labour manifesto promised a “Business Tax Roadmap” for the next parliament to allow businesses to plan investments with more confidence. This could provide clarity on any scheduled changes to Corporation Tax reliefs and capital allowances for five years, including setting out a timetable for planned reforms.
Employer National Insurance set to remain the same
During the election campaign, Labour pledged that they would not raise taxes on working people. So, you can expect to see no change to:
- Income Tax
- National Insurance
- VAT.
Given this consistent messaging, it would suggest that there are no plans to change the rates of either employee or employer National Insurance. However, there has been no definitive statement concerning employer NIC – so this is something to watch out for.
Reform of business rates
Business rates could be one area where Labour policy diverges from their Conservative predecessors.
The government is set to overhaul the business rates system to create a more level playing field between high street businesses and online giants. The aim is to rejuvenate high street shopping areas and support local economies.
In their manifesto, Labour also pledged to support small businesses by:
- Guaranteeing access to banking services on their high street, including safely depositing cash, by changing regulations to accelerate the rollout of banking hubs.
- Stamping out late payment of invoices to small businesses and requiring large businesses to better report on their payment practices to expose late payers.
- Revitalising Britain’s high streets by tackling anti-social behaviour through the introduction of new town centre police patrols.
Labour has yet to announce any specific plans, so this is an area to watch.
Reforms of workers’ rights
Included in the new government’s first King’s Speech was a new Employment Rights Bill, aimed at strengthening the rights of workers.
Measures in the bill include:
- Banning zero-hour contracts
- Ending “fire and rehire” and “fire and replace”
- Strengthening Statutory Sick Pay by removing the lower earnings limit to make it available to all workers
- Making parental leave, sick pay and protection from unfair dismissal available from day one on the job for all workers
- Making flexible working the default from day one for all workers, with employers required to accommodate this as far as is reasonable
- Establishing a new Single Enforcement Body, also known as a Fair Work Agency, to strengthen enforcement of workplace rights.
As an employer, you could face large fines from this new enforcement body for flouting these rights.
This Bill will have to pass through parliament, but you may need to start planning for the implementation of new HR policies now.
Reform of the Apprenticeship Levy
The King also confirmed that the government plans to reform the Apprenticeship Levy and establish a body called Skills England, which “will have a new partnership with employment at its heart”.
Labour’s manifesto says that the current rigid rules ignore vital skills and training needed to access apprenticeships. So, the government want to introduce a more flexible Growth and Skills Levy, with Skills England consulting on eligible courses to ensure qualifications offer value for money.
More HMRC scrutiny
If you own or run a larger business, it may be worth noting Labour’s commitment to strengthening HMRC.
The election manifesto pledged to modernise the tax authority, invest in more HMRC staff focused on compliance, and change the law to tackle tax avoidance.
Labour has also committed to:
- Increase registration and reporting requirements
- Strengthen HMRC powers
- Invest in new technology
- Build capacity within the tax authority.
The manifesto states that there will be a particular focus on tax avoidance by large businesses – so you may need to prepare for heightened scrutiny from HMRC in the coming years.
More to come in the Autumn Budget?
To further promote certainty for individuals and businesses, Labour has committed to holding one fiscal event each year.
Rachel Reeves will deliver her first Budget on 30 October. Having already warned that she is facing a £22 billion “black hole” in the public finances, it is likely to be a speech full of policy announcements – and it’s fair to say that tax hikes for “those with the broadest shoulders” (as Keir Starmer defines them) will be expected to pay more.
Potential changes to personal taxation could include:
- Changes to Capital Gains Tax rates and/or reliefs
- More details of Labour’s planned non-dom reforms
- Reform of Inheritance Tax
- Changes to pensions, including the rate of tax relief or ability to draw lump sums.
Your HFMC financial planner will be able to help you navigate any reforms once we’ve heard Rachel Reeves’ speech on 30 October.
