Entrepreneurs react to UK Budget - Will This Fix Britains Debt Disaster?

0:00A£22 billion black hole, the first female chancellor in British history, and the biggest shakeup for tax in a generation. This week, Labour delivered their first budget in 14 years, and entrepreneurs need to pay attention to this. For months, they promised no increases in taxes for working people. That's no increases on VAT, national insurance, and income tax. How will that affect Britain's entrepreneurs and businesses, and how will it help solve Britain's debt disaster? so Dan over the last month entrepreneurs in general have been losing their shit over the idea of capital gains tax going to 39 % and the government getting rid of entrepreneurs relief and I would say that's the thing that's been most on whatsapp on email all friends everyone's petitioning everyone's losing their minds everyone's going to Dubai that's the big one that everyone was so scared about and so when today happened I'm not saying that everyone's walked away from it happy.

0:58But I feel like everyone was like, God, it's not as bad as I thought it was going to be. Like, we're not probably going to face the same sort of insane exodus that we would have had those things happened. There's the famous quote, isn't there, that happiness is reality minus expectations. Yeah. And there's a big sigh of relief from the entrepreneurship community, because frankly, the expectation was, well, my expectation, yeah, as bad as 39 % capital gains. Yeah. No entrepreneur's relief, as you call it, which is more its colloquial term, it's known as business asset disposal relief, which is the first million pounds.

1:31So you exit a business, say you exit for 10 million pounds, the first million pounds of that will have a 10 % tax rate. So you'll keep 900k. Now that used to be, you know, for a lot of our friends, you know, in the last 10 years, that used to be 10 million pounds. You make 10 million pounds, you keep 9 million. So they got away with murder. And there's a big debate as well, that if Labour does want to encourage entrepreneurship and business and innovation, they should have actually been more aggressive in that space. They should have taken it back from 1 to 10 to drive people to want to start businesses here because one of the things that the economy needs is innovative people and entrepreneurs wanting to start and build businesses here.

2:11So what was the problem they were trying to solve? The core problem of the budget was to solve a 22 billion black hole in public finances and the major promises were no increases income tax vat or national insurance for individuals no return to austerity and a protection of public services public service crisis as we know the nhs schools are in disrepair and transport infrastructure needs significant investment and then generally the uk is now lagging behind uh g7 in business investment and as we know it's to sort of show that we're on, the country has a massive productivity issue. We have an innovation issue, a productivity issue, and this budget is trying to reduce this black hole at the same time as increase productivity.

2:59It's easy to slag off whatever the policies were, and they've got a hard job. They don't seem to have pissed off enormously any particular enormous group. I mean, they've done... Farmers. Farmers, private jet owners. Beers cheaper. Beers cheaper by a penny. I think in general, they've done a relatively good job of not making it too radical. And that is a concern for the Labour government in general. People are concerned this is a radical government. This is not a radical budget particularly. I feel like as we dig into it though, I probably will make the case that I feel like it is very bad for business.

3:33Yeah, not in the obvious way. Not necessarily around innovation and the entrepreneurs that we discussed, but you are right. The repercussions of this won't be seen on the face of it. And that's kind of what I want to get into is that even if you're taxing business, with the sake of trying to recoup money and it's often seen as like tax the rich, like fuck businesses, which is publicly quite well accepted. People forget that businesses are entities that have to react to an action. And so how will businesses react having to pay way more for their staff and to be taxed a lot more from a national insurance perspective?

4:07And I feel like we won't see it immediately. How much more expensive is it to run your company tomorrow? Absolutely guaranteed, going to have massive layoffs as a result of the national insurance increase? So there is so much to talk about here. There's a lot of it is incredibly complicated, and we're not going to be able to cover everything. But the five things we're going to focus on are employer national insurance increase, minimum wage, nomdom changes, high street tax, and capital gains increase. Let's get into it. I think the biggest one and the one that I think is going to have such an impact as time goes on is the national insurance increase.

4:43And so a couple of changes, national insurance has increased from 13.8 % to 15%. But also, the amount that they're taxing on has changed as well. So right now, they will tax you on 9100 pounds, they brought that rate down now to 5000 pounds. And so you start paying national insurance much earlier at a higher rate. And so even on the first£9 ,100 of paying an employee, you are now paying effectively tomorrow£615 more per person. And so that is a very significant challenge for businesses, because if you have a decent staff, immediately tomorrow your costs are significantly higher. I'll tell you what's interesting.

5:26So with Heights, we started in 2020, which means that we started in the pandemic, which means that we started hiring remote and international and all sorts of things and have tried to bring people back to the UK and whatever but half our team is abroad we've always had this thing where we want to hire people in the UK we want to like you know we're driven to do that we're driven to hire them in London and come to the office etc etc but when a lot of companies will be like mine you do in these situations have a bit of a choice of like do I continue to scale up a lot of my cost base when I already have the evidence with half my team being highly productive awesome people I like to work with, etc, etc.

6:01But I don't have all these extra hidden costs around them. It's much cheaper for me to hire people from other countries, even on the relative same salary. Let's look at the outcome for the government. So this will raise 25 billion annually by the end of the forecasted period, making it the largest single tax increasing measure. And I think that that will be met broadly around the country as a really good thing. Let's look at some real life examples. So, so at Secret Leaders, there's six of us and we pay above what they suggest as the average salary. And so for us, our national insurance bill will be going up, not a significant amount.

6:37And one of the changes they've made is that for the first, effectively, for the first four employees you have at a company, you will not have to pay national insurance, which is great, which is great as an outcome. And I've always thought the tax should be more ratcheted based on certain metrics. Do you know the impact on Heights, bigger company? Yeah, hold on. So I looked at this earlier. So we employ about 16 people at Heights. Average salary is somewhere around£55 ,000. And it would cost us an extra 18 and a half, so£18 ,652 more a year, or an extra£1 ,165. So it is almost a 20 % increase in employer like national insurance contributions a lot i did the numbers for lottie so there's about 100 people at lottie average salary about 50 ish k as well it would cost 110 500 pounds more a year which is a 20 increase in national employer contributions i think to your point which i think is a really good point one it makes you think am i employing more people in london when I know this is quite punitive to do so.

7:44But also too, I think that people will greet this with a great amount of love and whatever, but an increase in cost for the business will be felt down the line. It will be felt in, I will either reduce my profit, which we'll talk about in a second. I will increase the prices of my products to make the difference. Or in the future, I will have to let staff go to achieve the same equilibrium I was at before, or I won't pay staff more money in the future. I think the other side of this is if you think about what types of businesses, if you're an innovative business like Lottie, Heights, you're a media company like us.

8:19Super innovative. You're the reality of the type of employee that you or the way that you build your business and think about stuff is how do I scale? How do I use tools? How do I use outsourcing? We have in-house editor, we have in-house marketers. Sometimes we've got too much content and we're busy and we will do things like go to the Philippines where they've got exceptionally high quality editors and we'll stack up like what we need there but no national insurance no national insurance they're fast the skill is high the work can be done this way right and in media in content in technology and innovative businesses it's a global workforce yeah and the most important thing is the meritocracy of who's doing the best work and then can i get a good price and can i drive profit and efficiency and is everyone in the company happy with that and like you said we tested it in covid and we all did it exactly that we're forced to do it in covid and we all did it so then you've got on the other side this problem so who actually suffers from this kind of stuff low skilled workers generally speaking in like low growth non-innovative industries yeah which kind of keeps britain sort of you know attitudinally a bit in the dark ages it doesn't really progress us as a country because the smart innovative businesses just will circumvent this challenge we'll just find a way around this yeah you know your smaller less flash less innovative businesses are going to struggle that I think will be felt painfully down the line I think for business owners in general that feels quite punitive to me I don't feel like that's going to inspire more entrepreneurship so how many businesses do you know that self-select to have less profit well I mean you know not for profits but um and I run one so the most impactful thing that you can do in society according to every single bit of research every book ever written every bloody time someone studies this is create a profitable business with maximizing profits, giving good shareholder returns and investing in your community, society, philanthropy, whatever you want to do with that money.

10:15So no. So no, like not any smart entrepreneurs. Like in reality, it's a net negative. Yeah, mature businesses are effectively not allowed to reduce their profit. That is the nature of having proper investors and growing properly at scale, etc. But we should be making policy to make companies who do AI and chips and new tech come to the UK. We should make it so fucking attractive. Which we are. I mean, that's kind of the other thing that's so ridiculous. We are. We're doing a lot of those things. We've got really great policies and great genius people. London is one of the great capitals of AI in the world.

10:53It's probably third, again, after San Francisco and Tel Aviv is London. so we've actually got the right policies but all the right ingredients but when we then layer on this stuff doesn't make any sense so next up and again uh challenging for businesses i feel and also quite funny because i you know i remember minimum wage when i started working i was wearing like three four quid yeah we're looking at um a national living wage rising by 6.7 % from the current rate of£11.44 to£12.21 per hour. Sorry, if you'd have told 18-year-old Daniel that I'd be earning £12.21 an hour for my low-skilled crappy pint-pulling that everyone complained about, and I'd be getting £12 an hour for that?

11:41I worked it out before that that is the equivalent of a 25k, 25.5k salary. That's actually insane. Is actually insane. that if you i mean is that london living wage was that national national national 25k is that literally pulling pints for 25k hospitality generally pubs etc are operating on like razor thin margins their costs have just gone through the roof and so they're going to be under more pressure than they've been on previously although it's great for youngsters i just don't believe there will be as many jobs as there were moving forwards with this nope so obviously pouring a pint and staff working in a pub, it's not particularly high skill requirement.

12:21You know, I've done it, you've done it. But have you heard of the penny off a pint thing? Yes, I have heard about it. Oh, okay. Where did you get that? I got this from our incredible producer, Jay. Wow, Jay sounds amazing. Jay, mum, sorry, Jay. Can I have one, please? Here you go. Oh, that's very kind. Thank you. nice little uh semi ad here for brew dog got james what coming in in two days was that a penny cheaper no that's not quite how it works what was the symbolism of this then so well firstly penny off a pint is uh is is simplistic on the basis of it sounds good so it's a nice line it's great for press it's very much being used as a kind of uh opportunity to capture headlines in reality as i understand it they have uh offered landlords and pub owners and stuff like a penny relief essentially on the tax and so every pub that's selling x many you know or rather look nationally the millions of pounds that are being spent on beer every single week you know collectively that is a big saving across all the different pubs all the different chains etc etc so in theory especially if you're a chain pub owner it's a big deal if you own a few pubs it might feel like a big deal overall but it's pretty tokenistic it's kind of it's kind of bollocks but it sounded good do you know how much is spent in pubs on draft beer every year 500 million 8.5 billion that is wild so this little thing is actually going to cost the government 85 million if you needed to do this one you know we're all okay with booze being more expensive now totally yeah i you were talking about this last week but you know the right thing to do in my opinion is uh tax bad things, not people.

14:06You know, tax... It's not about tax the rich, it's tax bad things. Bad behaviour. Yeah, and so, you know, the beer thing's, you know, kind of pointless and wrong in my opinion, but one thing they have done is... Did you see the vape tax? I fucking hate vapes, and I hate the fact that people started vaping before they started smoking. Like, we vaped to get off cigarettes, and so they should have done this a long time ago. Yeah, so it's an astonishing£2.20 on every 10ml vapes. It's huge. which, you know, hopefully it makes a big difference. Okay, so we're back. So we've just talked about minimum wage.

14:38We talked about national insurance. We talked about the penny off a pint. What have we got left? We've got non-dom changes. Let's talk about that. So I've lived in the UK all my life. I'm brushing up on this as we read this. So my understanding is that non-doms previously have been people that have resided in the UK, owned property in the UK, etc., but have had their money and made their money elsewhere. and so you could be making a huge amount of money elsewhere and you were only taxed on the money that you were bringing into the UK and so you could effectively live on X amount while making Y amount.

15:12Yeah, there's two sides. We want innovative people to come to the UK. Like you, lived in the UK all my life, don't know very much about non-DOM status because it doesn't affect me and I don't care about it. But having just read up on it, as I understand it, that's very unique to the UK. G7 type countries are ahead of us on this, as it were. they are taxing people on their money made elsewhere yeah whereas we weren't so there aren't any details on what the impact of this is going to be yet all the wealthy people i know super wealthy people who've sold companies they will make their money and then they will invest their money typically in offshore investments and those offshore investments will grow enormously not being taxed in the uk and so presumably that's also going to be clawed back if that tax is three or five percent are really people going to do much about it if it's 30 40 we've got a big problem the major change i mean obviously we've already spoken about the fact that uh national insurance is going up and minimum wage is going up which is going to affect primarily you know high street type businesses that rely on young cheap labor we also have uh business rates relief which will be 40 % coming down from 75 % um which is mad that's a lot that's a huge amount of money which will be effective from 2025 so the cap on the relief you are able to receive if i've read this correctly is 110 000 per business so if you're a chain business you have tangibly overnight lost an enormous amount of money just through your rates we've seen so many huge stores go under you know Woolworths being a perfect example um and we're in a situation now where if you look at the high street you know you're 37 you know you looking at the high street must look incredibly different to you it's quite different to me um and I think that we must all start to question what's the point in the high street you know you start to think to yourself well the high street is very important for business and it is very important for community and so like you say online is going to crush especially now everything that we have and i swear all the high streets i look at that aren't central london now are just desolate the thing that we should be driving in the society right now with all this stuff is a culture of society of community people coming together you know wanting to walk in and out of shops and all this kind of stuff and this these these kind of measures they really just kill all these opportunities an incredibly niche one but they have introduced an anti-crime measure which is removing the effective immunity for low-value shoppers.

17:50I mean, who the fuck ever came up with that in the first place? Have you ever been in a store now that you witness crime all the time? Well, we didn't pay for these beers from the test. No, well, Jay stole them. But I feel like I was in a co-op the other day and I saw someone stealing. I was in a test co-op and I saw someone stealing. And it's clearly because it's fine. Yeah. So naturally they want to wind up Rishi and his wife all the time I'd probably take a jibe at you as well so they've taken away your private jet liberties sadly so your tax increase is quite hefty no more Ryanair but you're going to have to go on Ryanair you're going to have to join me in row Z 50 % increase in air passenger duty for private jets that's a lot but also who gives a fuck I mean I agree with you one I'm all for it you know Yeah, I think everyone's for this one.

18:39If there's tax to be made there, like, you know, gimme sort of thing. But it feels like this is another... It's nothing. It's like a good marketing ploy. Yeah. So anyway, I guess, you know, maybe our listeners can join us and start a GoFundMe for some of these affected billionaires. I did see this really good tweet, actually. It's good marketing. From Internet Dave, who said, poor private jet owners. May I suggest you cancel your Netflix and stop buying expensive coffees? You'll get through this. Yeah. Quite enjoyed that passive-aggressive reference. And funny enough, whoever concepted that part of the budget is a smart marketer.

19:12Yeah, that's actually smart, isn't it? All right, listeners, we've saved the best till last pretty much here. Most importantly, what were we expecting to see? I was expecting to see 39%. I just thought that they'd gone completely fucking nuts. I've been in some WhatsApp groups with you and you were vocal. I was. I thought that's what they were going to do. I mean, sounds ridiculous. I was not vocal. One of those things that if that had happened, even the most sensible entrepreneurs are like, fuck this shit. Oh, totally. Yeah. And especially coupled with, and not that it's important, but it is symbolic.

19:41The messaging pre this was like, entrepreneurs relief is going, capital gains is going. And so on your first million after selling a business, you'd be paying 390 ,000. Take me through that logic of leaking that you were going to do those two things. Because the impact of it is in the last month, the UK has become per capita, the number one exodus of millionaires in the entire world. Ahead of China. ahead of China. What's the point? Like that is so detrimental to the UK. That in itself has probably lost more billions in taxes. You know, the Revolut founder, that company's worth like $50 billion.

20:18So his personal tax will be worth billions. And he moved to Dubai. Yeah. So what is the point? You've just lost billions in that. It's fucking stupid that they scaremongered like they did. I understand why they scaremongered because it was smart tactically. But to scaremonger like that was insane. The extremity of it was completely wrong. So the lower rate tax has gone from 10 % to 18%. So plus 8 % of tax there. The higher rate, 20 % to 24%. So plus 4 % rate. Property CGT remains at 24%. Then you've got the business asset timeline. So business asset disposal relief, as we colloquially call, colloquially call, you can tell the beers are hitting in now Entrepreneur's Relief that's going to stay at 10 % for the 24-25 season don't know why I'm talking in football terms and then it's going to rise to 14 % in April 2025 and then there's a further increase to 18 % from 26-27 so if you're an entrepreneur and you're listening to this show which frankly is every entrepreneur in the UK otherwise what the hell obviously send it over the big advice I'd have for you is try and get a secondary or some kind of exit by April 2025.

21:34Yeah, that's fucking good advice. Maximize your ability to get that 10 % benefit on the first million. Easier said than done, but you've still got, you know, eight, nine months to do it. And that's terrible math, more like five, six months to do it. I would love to see, like we saw earlier, I would love to see what the positive monetary outcome of that change is at that level. They're not making a huge amount from that. Yeah, there is a slightly different thing. So the revenue impact, apparently, expected to raise£2.5 billion by the end of the forecast period. So, I mean, that doesn't sound like that much money for all that pain.

22:09But anyway,£2.5 billion. You know, again, I'll say it one more time. Number one place for startups in the world, San Francisco in the Bay Area, Silicon Valley. Number two, Tel Aviv, Israel. Number three, London, the UK. It was not like that. Because of those policies. Exactly. It was not like that. That is since 2010. So the policies that we had around taxation, entrepreneurs relief, innovation, they drove multiple, FinTech open banking especially, it drove the UK to become a unicorn country. So it's a perfect example of showing how tax incentives do create incredible outcomes and they drive countries forward.

22:52And if you remove those things, the opposite can happen. That's just logical, right? Every action has an opposite and opposing reaction. The flip side argument here is the international context, which is that the UK still maintains the lowest capital gains tax among European G7 economies. And we will be keeping our million pound lifetime limit for business asset disposal relief. So if you look at the last 10 years, we've had some of the most incredible companies come out of the UK, which in so many ways you wouldn't have expected. But like you say, we're third on the unicorns. And so you've had like Gusteau, you've had like Brewdog and Wise.

23:28And so I think like for us, it's one of those things that if you want to inspire entrepreneurs in the UK to stay, they might stay off the back of this budget. That might be the case because it's quite a heavy lift to leave. A lot have left. But what you want to be doing is you want to say like, how do I get the best entrepreneurs from everywhere around the world to go, fuck, I want to work and build in the UK because the outcomes are amazing. It could be worse. At least you're not a farmer. So everyone's favorite farmer, Jeremy Clarkson, said, farmers, I know that you've been shafted today, but please don't despair.

24:01Just look after yourselves for five short years and this shower will be gone. And then Kirstie, also slightly more aggressive, said, Rachel Reeves has fucked all farmers. She's destroyed their ability to pass farms onto their children and broken the future of all our great estates. It is an appalling decision, which shows the government has zero understanding of what matters to rural voters. So this is obviously in relation then to inheritance tax. So apparently this only affects about 25 % of farmers. But I think one of the things that they don't understand is that farmers know they don't make a huge amount of money nowadays.

24:37For anyone that watches Clarkson's Farm will know that, like, at the end of all that trial and tribulation... Yeah, they make like 20 quid. Yeah, they make fuck all money. And so being a farmer is less exciting and lucrative than it used to be. And so I suppose passing the land down is incredibly important. But like I say, this is not, you know, the core topic. But, you know, maybe we'll have some farmers and some pitchforks at some point. So, look, there's a couple of things we didn't really touch on, but, you know, it's pretty much time to wrap up. Corporate tax is pretty much the same. Private school tax.

25:07So, you know, that's going up a little bit. I mean, people have talked about that in the media for a while now. You know, VAT on that now as well. I'm personally going to have to just add that on for my daughter with my private jet tax. How was this budget compared to what you were thinking overall? I think it's shit, personally. I mean, it's so British. So neggy. They could have done anything and you'd have come to that conclusion. Well, I think if you break it down, if you look at all the different parts, I think it is rubbish for business. but I think that it's just way less bad than everyone was expecting because of the rumors circulating the news whereas like if you're a small business this is not looking good for you like okay if you have four staff the national insurance thing doesn't really affect you but four staff is micro most businesses aren't like that they're sort of mid-range and so tomorrow you wake up with a much higher bill your cheapest staff now costs you more and you're looking down the barrel of a business that costs you a lot more to do the exact same thing and so no way is that a good thing tomorrow morning?

26:00For me, no. I think, yeah, really shit for business. Not going to inspire much more entrepreneurship. People will have left already. More people will leave. I don't think it's going to gain, get people over. So no. I think the big problem is to grow an economy, to get us out of this spot, to be a world leader, which is what Britain should aspire to be. Full stop. We have so many ingredients that we should be doing that. We need a more productive society. We need to grow our output. We need to innovate. We need to employ more people and get people off things like benefits and create jobs and opportunities and aspire and be more positive and all of those kind of things.

26:37And frankly, all we've actually done is create punitive restrictions on the private sector. And, you know, people in the public sector are getting paid more. Anyway, we'll be honest. It secretly is after dark. It is 11 p.m. on Wednesday night. And we've had a few beers now. So doesn't mean we're right. this is what we think about the budget it doesn't mean it's what you think these are our opinions we'd love to know what you think yeah so let us know what you think in the comments we're super interested in how entrepreneurs are like looking at this this is just what we think i'm chris i'm dan thank you for listening to secret leaders