Budget 2015: What Shropshire thinks

Shropshire's huge small business community warned that it could be faced with fresh financial problems if forced to adopt the new minimum hourly rate, proposed in Chancellor George Osborne's Budget.

The rate is due to reach £9 in 2020, rising slowly from a level of £7.20 when it is introduced in April for over-25s.

Corporation Tax, paid by businesses on their profits, is set to be cut by two per cent over the same period, but that may not be enough to offset the impact of the wage rise.

It provided the biggest bone of contention among businesses owners who gathered to watch the Budget at an event hosted by the Federation of Small Businesses at the Wroxeter Hotel.

Peter Silver, regional treasurer of the FSB and owner of Silver and Co accountants, warned: "I am worried about the effect of the living wage because businesses I am involved in looked at the living wage, coupled with a three per cent national insurance and they are talking about a 20 per cent loss of staff.

"I am surprised that they want to put it up. I think it has more to do with reducing the social security budget."

A four-year freeze for working-age benefits and restricting tax credits to two children are among key parts of a blueprint to slash at least another £12 billion-plus a year from the welfare bill.

Public spending cuts were the subject of protests outside the Houses of Parliament while the Budget statement was in progress.

Chancellor George Osborne said it was not fair to taxpayers that the UK was responsible for seven per cent of the world's welfare spending, despite being home to one per cent of its population and generating four per cent of its income.

Working age benefits will be frozen for four years from 2016/17 – including tax credits and local housing allowance, but excluding maternity pay and disability benefits.

Support for children through tax credits and universal credits limited to two children, affecting children born after April 2017. The two measures are expected to save around £4.9 billion.

Social housing tenants earning more than £40,000 in London and £30,000 elsewhere will be forced to pay rent at market rates.

And new conditions will be placed on Universal Credit claimants once their youngest child turns three.

"Mr Osborne has pledged to limit state support for families to the first two children," said Francesca Hutcheson, of Whittingham Riddell Chartered Accountants in Shrewsbury.

"New claims for families for three or more children will be restricted from April 2017 with no extra tax credits/Universal Credit for the additional child."

This, coupled with other measures to reduce the annual benefits cap and apply market rate rent on social housing for those earning above £30,000, could leave some low-income families seriously disadvantaged as a result of the Budget.

"One wonders whether the new National Living Wage and increase in the Personal Allowance will be sufficient to cushion this blow."

Other measures will see the benefits cap reduced from £26,000 per household to £23,000 in London and £20,000 in the rest of the country.

Automatic entitlement to housing benefit for 18 to 21-year-olds abolished, with exemptions for vulnerable people, and rents in the social housing sector will be reduced by one per cent a year for the next four years.

However, former High Sheriff Robert Bland, the chairman of Oakleys Fuels and Ground Care at Cressage, said he felt the Budget was pro-business.

"I think in principle it is a good and sensible practical move," he said. "There will be businesses that will struggle but in the main I feel it is a fair and realistic way forward."

"The whole essence of Government strategy is to make it worthwhile to work, and in order to do that businesses have to pay reasonable rates of pay."

Figures compiled by the Office for Budget Responsibility suggest that the incremental increases in the minimum wage will cost the country 60,000 jobs by 2020, but that there would be around one million more in total created over the same period.

The increase to £7.20 by April is a rise of 70p on the current minimum rate and 50p above the increase coming into effect in October. The Low Pay Commission will be asked to recommend the premium going forward, increasing the rate to 60 per cent of median earnings by 2020.

Around 2.7 million low wage workers are expected to benefit, while six million should see some pay rise as a result of a "ripple" effect, said the Government. It is hoped the effect on business will be offset by a fall in Corporation Tax from 20 per cent to 19 per cent in 2017, and 18 per cent in 2020.

Richard Sheehan, chief executive of Shropshire Chamber of Commerce, said the move came at a sensitive time as it coincides with automatic enrolment on pensionschemes, which is being introduced to small businesses over the next two years.

"The Budget was a little disappointing, as it wasn't as business focused as we would have hoped," he said, as he took part in a live Budget webchat for www.shropshire star.com

"There were opportunities I feel the Chancellor has missed, particularly in reducing the burden of employment, and the continued growth in international trade.

"There's a risk from a cost point of view with the living wage. The fact that it will be running in tandem with the introduction of auto-enrolment will impact on many small businesses in 2016/17, and it will hit many small businesses."

Another panellist on the webchat, Francesca Hutcheson of Whittingham Riddell Chartered Accountant, added: "It will be a short-term cost that businesses have to bear, but the hope is that in the longer term it will be lessened by growth in the economy and the reduction in Corporation Tax."

She added: "I spoke to a large manufacturing client recently and their concern was that any significant increase in the minimum wage would lead them to consider taking production to China where costs are that much lower in a competitive market for them.

"I'm not sure a further reduction in Corporation Tax is enough to compensate for a significant up-front cost they have to bear for businesses effectively subsidising the benefits that are being withdrawn from low-income households."

Overall, businesses said the Budget had delivered mixed news, and another accountant, Neil Phillips of Phillips & Co, said: "The most welcome announcement which will affect Shropshire was the national investment allowance of £200,000 that is to encourage businesses to invest in machinery, as until today that was due to fall to £25,000 in January.

"Not only do I welcome the figure but also that it will stay at that figure for a number of years so businesses can plan for future capital expenditure because they really have to." However, he added: "Sixty per cent of businesses in this country are sole traders and I believe the Chancellor has ignored them."

In education, university student maintenance grants are to be scrapped and replaced by loans. Mr Osborne also said tuition fee caps would be linked to inflation for institutions offering high-quality teaching.

Rosie Beswick of Rosie Consulting in Shrewsbury added: "I think it was a very balanced Budget. All round, it was slightly eased on welfare cuts but I think they also made some very sensible economic and business decisions.

"As someone who is very, very aware that businesses struggle to get quality staff, I think they looked after universities, they looked after schools, but there is nothing for further education and that is where apprentices come from, and we need better quality apprenticeships."

Among his major announcements on government expenditure, the Chancellor said Britain will meet the Nato spending target for defence – which is set at two per cent of national income – and that the NHS will receive a further £8 billion by 2020.

On personal tax, Mr Osborne introduced reforms to pensions, making them more like ISAs, a widely-anticipated change to Inheritance Tax which means that married couples can pass on an estate worth £1 million tax-free, and a rise in the thresholds for income tax to £11,000 for lower-rate earners, and £43,000 for those paying at a higher rate.

Nick Jones, of St James's Place Wealth Management in Shrewsbury, said: "The pensions flexibility is great as it gives people the right to control their own money."

Meanwhile, the levy imposed on UK banks is to be slashed over the next six years but the sector will be hit with a new eight per cent charge on profits.

The new surcharge on bank profits will take effect from January 1 next year and will see banks pay an extra £2 billion in taxes over the next five years.

Drivers received mixed news in the statement, with the news that fuel duty will remain frozen this year tempered by a warning from the RAC that it "sounds alarm bells" for next year.

Mr Osborne also announced reforms to vehicle excise duty, reducing the number of bands to three, with 95 per cent of new cars in the standard band which will cost £140 a year. Existing cars will not be affected by the change.

Shropshire MPs were quick to praise the announcements, with Ludlow's Conservative MP Philip Dunne saying: "This was a measured Budget, which reflected our Conservative plan to make our country more secure and improve lives for people in Shropshire."

Telford's Lucy Allan, also a Conservative, added: "This Budget is focusing on the low paid and this is good news for Telford."

But unions were quick to attack the Budget, describing it as a "beautifully crafted con trick".

Paul Kenny, leader of the GMB, said: "On the one hand he offers a vision of a living wage which is welcome. He confirms what GMB has being saying for some time – the vast majority of employers can afford pay rises and no amount of howling from the CBI will alter that fact.

"On the other hand he is taking away money from working families without any guarantee that they will be better off."

A Shropshire business

For business owner Helen Culshaw, the Budget provided plenty of positive news.

Cuts to corporation tax and an increase in the employment allowance mean her internet marketing business will soon receive some welcome tax relief.

Ms Culshaw currently employs seven people at her Shifnal-based company Ascendance Internet Marketing and hopes to use the money saved from tax contributions to add more staff members to the roster.

"Obviously the cuts to corporation tax are welcome for the business. We'd love to use the money to continue to grow the business," Ms Culshaw said.

George Osborne announced that corporation tax – the tax on business profits – will be reduced from 20 per cent to 19 per cent in 2017 and to 18 per cent in 2020.

One of the key themes from the Chancellor's speech was an effort to increase the wages of the lowest paid, by reducing the pressure that taxes put on businesses. His introduction of a "compulsory living wage" was a part of this – an increase in the minimum wage in all but name. Ms Culshaw welcomed the wage increase saying that "she wouldn't want to see anyone in a position where they can't afford to live," but said that her employees earned a sufficient amount already so as not be affected by the rise. This means she can reap the benefits of the tax cuts and invest freely, without needing to raise the salaries of current staff.

As well as the corporation tax cut, the employment allowance, which reduces the level of employers' national insurance contribution, will increase by 50 per cent.

Thus employers will soon be able reduce their national insurance contributions by £3,000.

Ms Culshaw, who is already looking for an apprentice web developer, said she hoped the further relief would allow her to continue her business's recent growth.

"The 25 per cent we reported as growing last year was actually an under-estimation as we hadn't received all of the figures," she said. In fact her firm has been growing so successfully that Google has identified it as one of 20 "high growth potential agencies" and is providing her with business mentoring as a result.

A Shropshire family

One of the headlines to come out of The Budget was the rise in the nation's living wage.

Chancellor George Osborne revealed that the National Living Wage will reach £9 per hour by 2020 and will be compulsory for those over 25.

And while many greeted the prospect of a pay rise with open arms, small business owners fear it could have a knock-on effect.

Russell Edwards, 31, who lives with partner Nadia Smith and their two boys Jude, two, and Vinnie, nine months, in Wem, also runs plumbing and electrical company Edwards Contracting.

He said: "It is a good thing for people who are on the minimum wage, but not such good news for employers. I have been worried when it was announced it could go up to £8.

"But this is not good news for small businesses. I have some who are on the minimum and they are not all worth even that. If I have to start paying them more I will have to tell them to go elsewhere. I think they forget about the businesses, because I don't have the money.

"Paying them more doesn't mean you get better quality, I don't think customers would be happy if we charged more."

He added: "It is a good thing to tell everybody because it sounds good, but I don't think it is actually good news."

Other news that came from Chancellor Osborne's announcements included cuts to benefits.

The amount of benefits that can be claimed by a household has been cut from £26,000 to £20,000, or £23,000 in London. Meanwhile, Child Tax Credit will be limited to two children for children born from April 2017.

Mr Edwards said: "I think it does make it less appealing for people to be on benefits, which is a good thing.

"I am for it if it encourages people to get out and work."

And when it comes to inheritance tax, Mr Edwards said he was very aware of how changes may affect him with children of his own.

Yesterday Mr Osborne announced that married couples will be able to pass on assets, including a family home, worth up to £1million without paying any inheritance tax from April 2017. Mr Edwards said: "It is one that will affect me and a lot of people. It is good news, especially as house prices have doubled over the past few years. I don't think anybody should have to pay tax on inheritance, especially a home, because it is to give to children or relatives."

A Shropshire pensioner

Retired council manager Bob Groom said he was sceptical about the Budget, saying it seemed reasonable at first glance – but suspected that some of the details were yet to emerge.

He said he was disappointed there was no mention of the prices being charged by the large energy suppliers.

"There was also nothing on rail investment, because HS2 has syphoned it all up," he said.

And Mr Groom said while the Chancellor had spoken of revised road tax bands to pay for a road investment programme, he would like to have seen more detail about this.

"I have always thought it should go on fuel duty, so that the people who use the roads the most pay the most," said the 72-year-old, who lives in Trench with his wife Christine.

"I suspect it would have been politically sensitive to announce a 3p hike in fuel duty, as people would have accused him of opportunism in taking advantage of the low fuel prices we have at the moment."

Mr Groom, who worked as a human resources manager for Telford & Wrekin Council before his retirement, said he was concerned about how the cuts to tax credits would affect young people.

The Chancellor said that working-age tax credits would be frozen for four years, including tax credits and local housing allowance.

To offset this, Mr Osborne announced a new national living wage for all workers aged over 25, which would give an estimated 2.5 million workers an average rise of £5,000 over the next five years.

However, Mr Groom said he was concerned about people below the age of 25, particularly those with families.

"You can have a married man with children of 24 and one of 25, and an employer can legally pay the one less than the other," he said. "Who dreamed that up?"

On the positive side, he was pleased that the Government had committed to setting up a new fund to pay for more apprenticeships, although he was concerned that it could lead to a new level of red tape.

He was also welcomed the announcement that free childcare provision for four-year-olds would be doubled from 15 hours a week to 30 hours a week.

A Shropshire single parent

Kirsty Downward, aged 21, broadly welcomed the Budget, although she felt more could have been done for her age group.

IT apprentice Kirsty, who lives alone in a housing association flat in Stirchley, Telford, particularly welcomed news that rents in the social housing sector would be reduced by one per cent every year over the next four years.

"I think that's very good," said Kirsty, who is working at Telford-based Bespoke Computing.

"I moved into my flat in October, and since then the rent has been raised three times, it was £360 when I moved in, now it is £420 a month.

"It seemed like they were just putting it up whenever they felt like it, so this will give me a bit of certainty."

One of the more eye-catching announcements was a new national living wage for all workers aged over 25, starting at £7.20 an hour from April next year, rising to £9 by 2020.

Kirsty had mixed views on this, saying it might help her in the future, but was disappointed that she would not be able to benefit.

"It will be another four years for me," she said.

However Kirsty, who at the moment takes home £987 a month after tax, was pleased that personal tax allowances would rise to £11,000 next year, and to £12,500 by 2020.

She supported proposals that in future 18-21-year-olds would no longer automatically receive housing benefit, but would have to demonstrate that they were either in education, training or employment.

"I think that's fair," she said.

Tax credits and universal credit payments will also be limited to two children for youngsters born after April 2017, and Kirsty again said she thought that was a reasonable measure.

"I think there are people around who think that to get a bit more money they will have more children, and that is not right," she said.

She said she did not have any strong views on the phasing out of maintenance grants for students on low incomes, with loans being offered in their place.

Overall, Kirsty said she thought the Budget was a little better than she had been expecting, although she said she was not expecting it to have any major impact on her life.

"I wasn't really certain of what it was all about before, but overall I think it sounds pretty reasonable," she said.