Businesses fear that increases to the National Minimum Wage and an increase in employer National Insurance contributions may be the final nails in the coffin for struggling firms.

"The UK’s minimum wage is up 37% since 21/22," says Rachel Watkyn OBE, the founder of Sussex-based Tiny Box Company, the UK’s largest sustainable packaging business. 

"It was £8.91 per hour three years ago. Inflation for the same time period at 21.58%. This doesn’t include the employer NI burden. Even at 1% that’s just under an 8% salary rise.

"Small businesses cannot put prices up to mirror due to uncontrollable cheap imports that don’t pay into the UK tax system in any way, so small businesses who account for 61% of all UK employment will be forced to lay staff off.

"The disregard for small businesses by Labour is staggering."

Many small businesses are concerned that increased wage bills following Labour's first budget since 2010 will make already difficult conditions worse.

Manchester based Peninsula provides HR, employment law, health and safety advice and support to more than 40,000 small businesses across the UK, and they are already reporting an increase in calls from clients concerned ahead of budget.

Kate Palmer, Employment Services Director at Peninsula, explains:  “Many small business owners are already struggling to keep their heads above water and the additional costs anticipated in today’s budget, including tax hikes, will be enough to cripple some, resulting in layoffs and redundancies.

 “The proposed increases to national minimum wage are causing real headaches and concerns for many SMEs."

The changes would increase the minimum wage from £11.44 to £12.21, adding £1,400 to the annual salary of a typical minimum wage worker. For the average small business with 10 staff, all aged 21+ on national living wage, this would be an increase of £14,000 per year.

Young workers will see an even bigger jump in pay, with rates for those aged 18-20 due to increase by 16% to £10 per hour, and 16–17-year-olds seeing an 18% increase with their hourly rate moving to £7.55 per hour.

“The knock-on effect could have significant impact on employers hiring younger workers, or apprentices," says Kate. "It’s likely that many smaller businesses will struggle, leading to lost opportunities for those looking to enter the workforce for the first time.

“While this may be good news for employees, it’s yet another cost that will add pressure to small business owners struggling with rising costs, expected increases to NICs and tax hikes. Such a large jump could have a significant financial impact on those who employ minimum wage workers.

"There is also likely to be a knock-on effect with employees who earn above the current minimum wage expecting a pay raise to maintain the gap between NMW and their pay. It’s highly likely that we will see job losses and some businesses going under due to the increased financial burden being placed upon them.”

Many businesses are particularly concerned about the impact of a potential rise in employer National Insurance contributions, as  Cas Paton, CEO of Bournemouth-based OnBuy explains.

“It is a mistake to assume that employees won’t feel the impact of a rise in employer National Insurance contributions," he says. "Pay rises will go on hold, new jobs won’t be created, some will suffer pay cuts and others will lose their jobs.

"SMEs will pay the heaviest price if the rumoured rises go ahead. These businesses, led by passionate, hard-working founders and their dedicated employees are the backbone of our economy. We’ve already seen how tough they’ve had it over the last couple of years and these changes will be a hammer blow.

"Many businesses will fail as they struggle to keep up with the costs of running their companies. Not only will this cost jobs, but it will erode the entrepreneurial drive that fuels our economy."

While many businesses are concerned, owners are pragmatic about the challenges that lie ahead. 

 "It's clear that difficult decisions lie ahead as the Government seeks to address a significant £22 billion shortfall," says Kevin Mountford, co-founder of Raisin UK, a savings platform based in Manchester, with over 1 million customers. 

"While Labour has vowed to protect working people from direct tax hikes, businesses and higher earners will likely feel the strain. Measures such as potential increases to Capital Gains Tax changes to Inheritance Tax, and the imposition of VAT on private school fees are expected, alongside potential pension reforms and adjustments to non-dom tax status.

"These shifts signal a budget that prioritises balancing the books by asking those with the broadest shoulders to contribute more. Still, the impact on businesses and investment will be closely watched and as is often the case, there could be unintended consequences."

While tax rises are hard to stomach for many businesses, it's clear that many are hoping for higher wages for workers and investment in public services.

Robert Palmer, Executive Director at Tax Justice UK said: “Rachel Reeves has a historic opportunity at the autumn budget to finally bury the ghost of austerity for good and give public services like the NHS the investment they need to function properly.

"People are looking to the Labour government to deliver the change they promised at the election and start making progress on improving living standards. There’s plenty of money out there to make the type of investment needed and the Chancellor can find this by taxing the wealth of the super-rich fairly, to benefit us all.

"If Reeves doesn’t grasp the opportunity, this budget may be one that comes back to haunt the government."