News reported last week said that the Chancellor has put together draft plans for spending cuts to welfare and other government departments.
At the time of the 2024 Autumn Budget, the Office for Budget Responsibility (OBR) said that there was a £9.9 billion buffer available against the Chancellor’s own self-imposed borrowing rules.
However, the OBR’s spring forecast seems likely to show that this buffer has disappeared due to the events of the last few months, including trade tariffs, the war in Ukraine and higher inflation and borrowing costs.
It could be argued that an alternative strategy would be for the Chancellor to amend her borrowing rules. However, to do so would risk losing credibility with the financial markets and the Chancellor has described her rules as “non-negotiable.” So, it seems that spending cuts are now likely, mainly to welfare payments.
How could welfare cuts affect my business?
Such cuts are likely to have ripple effects on small businesses, impacting both their customers and employees. Here are some key ways that these cuts could affect your business:
1. Reduced consumer spending: If welfare payments are reduced, lower-income households will have less disposable income, leading to decreased sales for businesses that depend on everyday spending, such as shops, cafes, and tradespeople. It can also lead to less demand for non-essential goods and services, such as entertainment, beauty treatments, and leisure activities.
2. Workforce challenges: Employees who may also rely on welfare support, such as Universal Credit top-ups or childcare subsidies, could be affected by cuts. This could lead to increased financial strain for them that leads to reduced productivity, higher stress levels, and even absenteeism. It may also mean difficulties in retaining staff if they seek higher wages elsewhere or struggle to afford travel and childcare costs.
3. Higher pressure on business owners: Less support may be available for self-employed individuals who rely on welfare payments during periods of fluctuating income. There may also be increased pressure to raise wages for affected employees, potentially squeezing already tight margins.
4. Local economy knock-ons: Local economies shrink when people have less money to spend. For businesses that rely on strong community support, particularly in areas with high welfare dependency, this can present challenges.
5. Impact on Business-to-Business (B2B) services: If welfare cuts lead to a slowdown in consumer spending, other small businesses that provide services to local companies (such as marketing, IT, and consulting) could also suffer as their clients tighten budgets.
What can you do?
Some basic steps you could consider include:
-Diversifying your customer base to reduce reliance on low-income consumers.
- Explore alternative revenue streams, such as online sales or subscriptions.
-Support employees through flexible working arrangements or other benefits to help offset financial strain.
While government decisions on welfare are often made with national budgets in mind, businesses are often on the front line of these changes. While this can create uncertainty, with the right planning and business strategy, you can take proactive steps to protect and even strengthen your business during challenging times.
Staying ahead of economic shifts is key to long-term success. If you’d like expert guidance on how to navigate the impact of welfare spending cuts on your business, get in touch with us today. We’d be happy to help you!
See: https://www.bbc.co.uk/news/articles/c1lpjqg2mp5o
The Chancellor Rachel Reeves met recently with major financial firms at Canary Wharf, encouraging them to invest in emerging markets to boost Britain’s economy.
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