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What Labour’s Win Means for Your Small Business

Now we know that Labour will form the next government, we unpack the policies that may affect the UK’s millions of small businesses.

The dust has settled, the votes have been counted, and now we know that after a landslide victory, Keir Starmer’s Labour Party will form the next government.

Uncertainty is bad for business, and many small business owners will simply be relieved that the election is over. But while all the main parties mentioned small businesses in their manifestos, or contract in the case of the Reform Party, most campaign headlines were dominated by discussions around immigration, the NHS, the housing crisis and crime. 

In truth, the owners of the UK’s 5.5 million small businesses could be forgiven for feeling a bit left out of the conversation. 

Focus should now turn to what Labour’s win means for those firms – particularly after a difficult few years and plenty of sleepless nights for the UK’s small business owners, sole traders and side hustlers.

Labour did promise last year that if it won the election, it would put the concerns of small business owners at the heart of its government agenda. But we know talk is cheap – and that the UK’s beleaguered small business owners would rather see concrete action than hear about the plans of vote-seeking politicians. 

Shiny manifesto pledges don’t always survive the harsh realities of the corridors of power, so, with that in mind, here we unpack how Labour’s pledges are likely to affect small business owners.

Late payment help

Labour acknowledged in its manifesto that the UK’s “small firms, entrepreneurs, and the self-employed face unique challenges”.

One of the biggest problems is the scourge of late payments. Official estimates suggest that a staggering £20 billion is locked up in the unpaid invoices of UK small businesses at any given time.

Labour plans to “stamp out” late payments by introducing new laws to make bigger firms reveal how promptly they pay their suppliers. This would involve forcing the audit committees of big businesses to disclose their company’s payment practices in annual reports.

Business rates reform

Labour has been extremely critical of the current business rates system. Rates are paid by businesses on non-residential properties, with the level of tax based on how much annual rent could be charged on the premises. 

According to its plan for Britain’s high streets, Labour aims to replace these business rates, which are set by central government, with a new and as yet undisclosed taxation system for business properties. 

In June, Rachel Reeves, the then shadow Chancellor, told the BBC that Labour’s rate reforms will work in a way that “reduces the costs for small businesses and high streets, ensuring that some of the big multinationals and tech companies pay their fair share”.

Business energy bills

One of Labour’s flagship pledges is to establish Great British Energy, a publicly owned clean power company.

The party claims this would help to drive down energy bills for small businesses after years of eye-watering costs. 

However, in reality, it is extremely difficult to predict the effect this will have on energy bills – and plans to decarbonise the UK’s energy grid may lead to greater short-term costs. 

Access to public contracts

Labour has again promised to “level the playing field” by making it easier for smaller businesses to access potentially lucrative government contracts.

Under Labour’s proposals, at least one small business would have to be included on the shortlist whenever a suitable public contract goes to tender. 

Making exporting easier

Labour has said it hopes to make life easier for small businesses that export their products.

It plans to do this by offering guidance to smaller firms and by removing some of the barriers that stop small businesses from selling their products in foreign markets. 

A new-look British Business Bank and banking hubs

Labour has pledged to reform the British Business Bank, the state-owned lender tasked with providing funding for start-up businesses. 

The Labour manifesto simply says the party will give the British Business Bank a “stronger mandate to support growth in the regions and the nations”.

Although we’re left guessing as to the practicalities of this promise, the Federation of Small Businesses has said this measure would be “a positive step” to ensure that there is financial backing for businesses across the country. 

Labour also aims to roll out new high street banking hubs for businesses and consumers. It claims this measure, paid for by the banks, will guarantee access to face-to-face banking in every community. 

For small business owners – particularly those who are wary of online-only ‘challenger banks’ – this proposal may make it easier to access business banking services. 

Questions over taxation and the VAT threshold

While there have been few concrete disclosures about Labour’s tax plans, the party has pledged to continue with the freeze on income tax thresholds introduced by the Conservatives.

This means many workers – including sole traders and freelancers – will end up paying more tax thanks to the process of fiscal drag (when frozen tax thresholds leave workers stranded in a higher income tax band without necessarily being any better off). 

Critics have also expressed concerns that Labour may reduce the VAT threshold – the level of turnover at which businesses must register for VAT and submit quarterly VAT returns to HMRC.

The VAT threshold was raised from £85,000 to £90,000 in the Spring Budget by the then Chancellor Jeremy Hunt.

However, with some confusion around how Labour plans to find more money for stretched public services, some fear Labour may slash the VAT threshold in a bid to raise taxes. 

Such a move would force hundreds of thousands of UK small businesses to start charging VAT on their products and services and saddle them with a greater administrative burden. 

National Living Wage

Labour has pledged to introduce what it calls a “genuine living wage” by forcing the Low Pay Commission – the independent body that advises the government on the National Living Wage and the National Minimum Wage – to reflect the cost of living in its recommendations. 

It has also promised to abolish any age-related eligibility requirements for this higher wage, meaning the National Living Wage would start to apply to all adult workers – not just those aged 21 and over, as with the current system. 

However, this could increase costs for employers, with economists at HSBC warning that increased labour costs for businesses could lead to job losses. 

Changes to employment law 

Labour says it is planning an overhaul of employment law, including lifting restrictions on trade union activity, ending “fire and rehire” practices, and banning “exploitative” zero-hours contracts.

A key plank of Labour’s employment law reform is to grant more rights to employees from the very day they start the job. So-called “day one” rights are likely to affect parental leave, sick pay, and unfair dismissal rules, which currently apply after two years of employment. 

During the election campaign, critics claimed these reforms would hurt employers and heap new regulations on small businesses.

While there are no further details about employment law reforms in its manifesto, Labour says it is planning to introduce these measures within the first 100 days of government. 

Image source: Getty Images

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