New year call for business tax cuts 

St Paul Cathedral London
St Paul's Cathedral, London

The UK government’s new year announcement of a new National Living Wage from 1 April this year has led to calls for a cut in business taxes to mitigate the impact on employers. 

The hospitality sector renewed pressure on the government to limit the effect on costs while a review of taxation was underway. 

The NLW will increased from £8.21 to £8.72, applying to over 25 years olds.

The Chancellor also announced plans to expand the reach of the NLW to cover workers aged 23 and over from April 2021, and to those aged 21 and over within five years. In September the Chancellor pledged to increase the NLW towards a new target of two-thirds of median earnings by 2024, provided economic conditions allow, which, on current forecasts, would make it around £10.50 per hour.

The government will set out more details on the future policy framework, including the role of the independent Low Pay Commission, by the Spring. The government said that it had “fully accepted” the Low Pay Commission’s recommendations after it consulted stakeholders such as unions, businesses and academics, before recommending the NLW and NMW rates to the government. 

Commenting on the government's adoption of the Low Pay Commission's recommendations for rates from April 2020, Kate Nicholls, CEO, UKHospitality, said: “Hospitality operators absolutely want to reward the great work of their staff. In order to make that growth sustainable, other measures are needed to mitigate cost growth.

"UKHospitality has long argued that business rates place an unfair burden on hospitality. It is now critical that rates are cut for the sector in April, to provide relief while the government's commitment to a more fundamental review of business taxation is delivered.

"The new government must also address employer National Insurance Contributions so that business can pay higher wages while continuing to invest in their businesses and future jobs.

"We welcome the continued oversight of the LPC in ensuring that future wage rates are set independently and safeguard the economy. This is particularly important outside of London where it is harder to mitigate wage increases with price increases. We look forward to working with the LPC to deliver on industry and government’s shared ambitions for the workforce.”

The British Chamber of Commerce co-executive director, Hannah Essex, added:  “Businesses want to pay their staff a good wage. They recognise and support the drive to improve living standards. But many have struggled with increased costs in a time of great economic uncertainty. 

“Raising wage floors by more than double the rate of inflation will pile further pressure on cash flow and eat into training and investment budgets. For this policy to be sustainable, government must offset these costs by reducing others - and impose a moratorium on any further upfront costs for business.”


Insight: And, as the working masses go back to the coalface, with only massively-reduced-price mince pies in their lunch box to remind them of the festive season, you would think that a few extra pence in their pockets per hour would be a source of celebration.

Not for the unions, with the TUC grumping that “working families need a £10 minimum wage now, not in four years’ time”. The government has pulled back from promises to move over £10, adding that proviso should “economic conditions allow”. This hack plans to buy her own tropical island should “economic conditions allow” too.

And as for the employers, it’s a case of “yeah brilliant, cheers for that” as Q4 figures from the BCC saw a broad-based slowdown in the services sector with all key indicators weakening amid sluggish household expenditure and ongoing cost pressures.

There were concerns during the election campaign that a Conservative government would preside over a race to the bottom in an attempt to make the UK more competitive, with wages and employees’ rights dropping. The resident of Number 10 seems to be seeking to reassure with this announcement. 

But there is no magic money tree. With unemployment low, the war for talent is intense. Employers are finding that they are having to offer more than just cash; training, loans, accommodation are all being used as inducements. All of which cost. Government must take a look at who will be paying the price for its election promises and how long they can afford to do so.