Published: 18/11/2024 By Hannah Duncan
The recent Autumn Budget 2024 has introduced several measures that are set to significantly impact businesses, particularly through increased employer costs and higher interest rates. These changes could potentially lead to a rise in insolvencies, especially among small and medium-sized enterprises (SMEs).Increased Employer Costs
One of the most notable changes is the increase in the National Living Wage, which will rise by 6.7% to £12.21 per hour for those aged 21 and over starting April 2025 [1]. This increase aims to support workers but will also add to the financial burden on businesses. Additionally, the National Insurance (NI) contributions paid by employers will increase by 1.2%, bringing the rate to 15% [2]. The threshold for employer NI contributions will also be lowered from £9,100 to £5,000 [1].
These changes mean that businesses will face higher payroll costs, which could strain their financial resources. For many SMEs, which operate on tighter margins, these additional costs could lead to difficult decisions, such as reducing staff or increasing prices to maintain profitability [2].
Higher Interest Rates
The budget announcement comes at a time when interest rates are already on the rise. The Bank of England has been increasing rates to combat inflation, which has led to higher borrowing costs for businesses [3]. This trend is expected to continue, further increasing the financial pressure on companies that rely on loans for capital and operational expenses.
Higher interest rates mean that businesses will face increased costs for servicing their debt. This is particularly challenging for SMEs, which may have less access to affordable credit and fewer financial reserves to cushion the impact of rising costs [4]. As borrowing becomes more expensive, some businesses may struggle to manage their cash flow, leading to a higher risk of insolvency.
Potential for Increased Insolvencies
The combination of rising employer costs and higher interest rates creates a challenging environment for businesses. According to experts, these factors could lead to an increase in insolvencies, particularly among smaller businesses that are less able to absorb the additional costs [2]. The increased financial burden may force some companies to downsize, delay growth plans, or, in the worst cases, close their doors altogether.
While the government has introduced measures such as doubling the Employment Allowance to £10,000 to help offset some of the increased costs [1], it remains to be seen whether these measures will be sufficient to prevent a wave of business failures.
Seek early advice
The Autumn Budget 2024 presents a mixed bag for businesses. While the intention behind the changes is to support workers and stabilise the economy, the increased employer costs and higher interest rates pose significant challenges. Businesses, particularly SMEs, will need to carefully navigate these changes to avoid insolvency and ensure their long-term viability.
As the new measures take effect, it will be crucial for businesses to seek financial advice and explore all available support options to mitigate the impact of these changes. With this in mind we would like to remind readers that we offer an initial advice meeting free of charge. Not all advice will be for an insolvency procedure, we often find directors say they wish they had come to us sooner. Furthermore, our Corporate Finance team specialises in lending for businesses, providing essential funding solutions to help businesses grow and thrive, why not get in touch to see if they could offer a more competitive deal than you may already be getting.
Give us a call on 020 8661 7878 or email us at insolvency@turpinba.co.uk meetings are confidential and can be at a time convenient to you.
[1] HR Solutions UK [2] Small Business UK [3] Sky News [4] AP News