UK businesses split on budget impacts

A recent survey conducted by the Federation of Small Businesses (FSB) has revealed that a significant majority of small businesses in the UK are bracing for potential staff cuts in light of proposed changes to employment law. 

The survey, which engaged 1,270 companies, found 92 per cent of respondents expressed concern that the new legislation would hamper their recruitment and expansion plans. Alarmingly, nearly a third of those surveyed are contemplating workforce reductions within the next year.

The bill, currently undergoing committee scrutiny in the House of Commons, seeks to rectify what ministers have characterised as an imbalance of power between employers and employees. Key measures within the proposed legislation include the banning of zero-hour contracts, the enhancement of statutory sick pay provisions, the strengthening of union rights, and the introduction of protections for workers against unfair dismissal from their very first day of employment.

However, this initiative has met with considerable backlash from the small business sector, which argues that such changes could significantly inflate operational costs while undermining already tenuous business confidence. This trepidation is compounded by recent governmental fiscal policies, such as Chancellor Rachel Reeves’ planned £40 billion tax increases alongside a 6.7 per cent hike in the minimum wage, both of which will take effect this year.

Tina McKenzie, head of policy at the Financial Stability Board, voiced concerns, stating that “small businesses have made it very clear” that the proposed bill is likely to weaken their willingness to hire. McKenzie underscored that the rising legal risks associated with unfair dismissal claims could deter recruitment initiatives and investment ventures among small enterprises.

Meanwhile, the Department of Business and Trade is promoting the legislation as part of a broader strategy aimed at enhancing living standards and stimulating economic growth. A representative from the department asserted, “this government is pro-business and pro-worker,” highlighting recent measures instituted to combat late payments and to amplify financing options available to small businesses.

In the wider economic context, both KPMG and the Bank of England have suggested that elevated government spending may deliver a temporary uplift to the economy. Nonetheless, the Bank of England has cautioned that inflation rates are projected to stay above target levels, which could adversely influence both growth and business sentiment in 2024 and beyond. As the implications of the proposed employment law changes unfold, small businesses are closely monitoring the developments amid increasing pressures from fiscal and policy shifts.