247. Sir Keir in China & will there be aftershocks from Japan’s bond quake?

29:39On the one hand, the value of these properties on which the rate calculation was based has gone up very significantly. And in many cases for pubs and for other businesses, it's gone up so much that the subsidy that the government is putting in doesn't compensate enough. Right. That's what I thought was happening. Yes, because the rateable value has gone up so much. But it just seems to me, given that in the budget, they did allocate£4 billion to try to keep these payments. It's not enough, but it's a lot of money, right?

30:15Steph McGovern:Yes, but the point is, on the whole, there's a lot of people whose business rates are going up again. And so that's the point of this. It's, yes, OK, it might not be as much as it could have been if they didn't do some of the£4 billion package that they're putting in. But the point is that it's not for lots of businesses. It's gone up. So, for example, in the fitness business I have, it's gone up by it's well. It's nearly double, to be honest, the business rates. So that that is quite a big hit to take as a business is double enough business rates. And it will be like that for lots of different ones.

30:53Some people will be confused by the fact that this is a government that claims it's putting more than four billion pounds. Why isn't that enough is the question.

31:00Steph McGovern:So you'll remember back when we first interviewed Rachel Reeves on that initial budget she did, the£44 billion worth of tax rises, majority hit on business with these national insurance contribution rises. And, you know, that was the big focus of it. But I remember for me thinking at the time, oh, one of the details and it was about this change in the business rate relief. So this is the relief that businesses were given off the back of COVID to try and basically help them because business rates are a big cost. And so those in the hospitality, leisure and retail sector were given some relief. Then that relief was reduced, which meant business rates went up for lots of businesses in this sector in April last year.

31:48Steph McGovern:And then in the latest budget, there were more changes announced again. What really stood out to me at that time of that very first budget she did was how she totally didn't think business rates changing was going to be an issue. I remember talking to the people I run the businesses with going, oh, as well as the employment costs, business rates is going to really hit us here. And it wasn't seen as a big issue. And I think that now has come back to bite her on the bum because that is what has added to lots of pressures on businesses is this increase in the rates. And despite the fact it's changing again and there will be some businesses that are better off from it.

32:26Steph McGovern:There are lots of businesses that aren't. And, you know, pubs has been one of the ones that's been very vocal about this. And now we've had this announcement about the 15 % off business rates for pubs and music venues. But there's still lots of businesses that have got more rises to face at a time when all their costs are going up. And it is a real pressure that's been underestimated, I think. One of the things that I did find completely implausible about the budget was that they could have announced a very significant package of help. But to have done that on the basis of not apparently, and this is what ministers have said, apparently not having all the figures about how rateable values for these house street businesses were rising.

33:14So they announce subsidies without actually understanding how the underlying formula that determines what people end up paying is going to have an impact on real world businesses. So I know that in your case, we've talked about this, but why don't you just talk us through the numbers? And in your case, with your fitness business, what you'll pay is going to go up very significantly, isn't it?

33:40Steph McGovern:It's a big hit to take as a business if costs suddenly double or whatever. And I know there will be some businesses where their rateable value will have worked out lower and they won't be paying as much on business rates. But there's also a lot that are. And that's why this is a big problem for them and for, you know, lots of small businesses out there trying to struggle and just even work with the uncertainty of bills at the moment. And one of the things, obviously, that you and I are both bemused by, really, is why the government is so obsessed with pubs as opposed to hotels, which are really struggling, fitness businesses like yours, which have an important role in the community.

34:17And I think we're now going to move on and talk about actually another business or type of business that play an enormously important part in most communities. And those are hairdressers. And we're not, you know, especially talking about the kind of high end hairdressers that you and I frequent. We're really just talking about, you know, the hairdressers that everybody uses. And that I mean, they do provide in many cases a real social service function because, you know, we know, you know, lots of people, particularly older people for whom the trip to the hairdresser is just such an important part of their routine.

35:01And, you know, it's part of their social life. And yet these are businesses that are really struggling with the increases in costs, aren't they?

35:07Steph McGovern:Yeah, it's interesting because this week I was with a load of salon owners and people who work in the hairdressing sector. And there was a real sense that things are really tough for them. you know business rates the the increased employment costs um the the issues just around high streets generally and the fact that you know in a cost of living crisis people cut back on on luxuries but as you say hairdressers are often the people who are there on the the front line of the mental health crisis as well in terms of people who go there and and have a chat talk about what's going on in their lives get a bit of perspective on things it might be the only conversation they've had that week um and so they're doing a lot of that hard work as well as you know cutting hair and also hair i think is undervalued it's actually it's a difference between feeling confident or not and it has so much more going to it than just being an aesthetic thing it's it's about a lot more than that but it's an industry that's really struggling a lot to do with the fact that it's so labor intensive and is you know on the high street You can't do it virtually yet.

36:15Steph McGovern:And it involves people, not AI. So it's not got all the technological change we're seeing in other sectors. And so therefore, their costs for a lot of them are getting to a point where they can't afford to do it anymore, to be in the industry anymore. And it was really sad to hear some of the stories of people giving up their salons. So we decided, didn't we, to get someone on to give us a sense of what's going on with all of this. And Toby Dicker is a salon owner, employs 70 people. He also set up the Salon Employers Association and he's really passionate about trying to help the sector to grow more and just tackle some of these, what he thinks are unfair taxes on the sector.

37:00Steph McGovern:So here's our interview with Toby Dicker. toby thank you very much for joining us um you and i had a good chat this week when um i came to speak at a big conference in the hairdressing industry and you could really feel the tension in the room about how tough things are for salon orders at the minute in terms of business rates the pressure of employment costs and this you know issue with vat we're going to come on to but set the scene for us toby what what's going on you know why is everyone kind of annoyed what's going on what's going on well the hairdressing and beauty industry um are amazing i mean the people in it are incredible people and that's really what i want to talk about you know the biggest emotional intelligence the people that are the glue of the high street bringing people together solving people's problems listening to people and yet they're never heard by government.

37:56Steph McGovern:And what that's led to, realistically, is us being the most taxed industry on the high street, quite simply. But because we're not male-dominated, because we're not pubs, because we're not jobs for the boys, we're not listened to. Nine out of 10 workers in our sector are female. The employees in our sector pay more tax or contribute more tax than anyone else. And for us, the rates, realistically, one, it's a huge lie. We were told that they were going to permanently reduce rates and I really believe that and yet it's more than doubled in fact it's 400 sorry it's four times higher for me personally uh than it was just over 12 months ago when it comes to next year so so for us realistically the rates are half the extra cost that we've got and what that means is that you know we're having the earth scattered on top of the coffin you know then the last nail came with the employment nicks and the misunderstandings within the sector.

38:54Steph McGovern:Yet we're well in the ground with the earth being scattered above and people are just really desperate, really desperate for someone to listen. Can I just ask one sort of basic fact question, which is if you look at your rates before COVID, what you were paying and compare that with now, because part of the government's argument is because so many businesses had to shut down, you know, essentially at that point, what you paid was absolutely slashed and we're back to more normal time. So they got to get what you pay back up again. But are you now paying more than you paid pre-COVID? Oh, yeah, absolutely.

39:34I mean, everyone's paying more and they will pay more,

39:36Steph McGovern:certainly in a few years time, once the reductions finish, you know, realistically, this we're helping by giving people reductions is a complete misnomer. So we're paying more than we were prior to COVID. Not only that, to be fair, rates are a property tax. They're not a business tax. If you're a business with a tiny margin in a large property, i.e. a hair salon, beauty salon on the high street, we're the top occupier of high streets for the last 10 years. We have big premises and yet we have the smallest amount of margin because of the taxes we already have and then you go well you're in a big property so we're going to smash your taxes up.

40:16Steph McGovern:It's completely ineffective. Government need to come together, Treasury need to come together, Department of Business need to come together and we need to sit in a room and actually work this out but business isn't bad. We're happy to pay our taxes but you need to listen to us. Can you just explain that point Toby about why you're saying you're the most taxed industry because people will be like, hang on, how does that work? Why would your tax be any more than anyone else who's running a small business? So can you just explain that point? Yeah, of course. Yeah, absolutely. I mean, CBA Economics did a report for us in February 2025.

40:50Steph McGovern:They did a comparison between us and typical retail. And for a small to medium-sized business on the high street, we ended up paying 300 ,000 in taxes on a million pound turnover, while the retailer paid 100 ,000 and the biggest reason for that is that we employ more people so we employ 60 % of our costs of people five times more than typical retail which means that any increase in employment costs and employment taxes hits us five times harder part one part two is that we don't buy goods in so we don't buy goods in so the the the 200 ,000 in in VAT on that turnover we claim so little of it back so we're hit by the massive taxes in employment and then we're hit by the VAT because we can't claim any of it back but we're adding value through labour now in Ireland they've recognised this hospitality and hairdressing specifically in Ireland has a nine percent VAT rate whilst retail has 23 percent and what that means is they've realised that the tax burden, the total tax burden on service-based businesses is such that they need to level the playing field in a different way.

42:03Steph McGovern:And they've used VAT to change the tax burdens of multiple industries across time. There's another issue with VAT as well, isn't there, to do with, and this is quite specific to your sector in the problem it's causing this two-tier system in hairdressing. And you have this problem with lots of people leaving employment in hairdressing so working for somebody in hairdressing and becoming freelance in order to avoid paying VAT so can you just explain that as well and why that's particularly a problem for you okay well I mean I'll give you give you an example I'll give you a stark figure um and on 80 ,000 pounds turnover uh an employee and I'm talking employees here because actually we always talk about businesses and we always talk about the business this is our employees who are being held back by taxes.

42:53Steph McGovern:An employee can contribute over£24 ,000 of that in PAYE and VAT. If you go next door and you split yourself into multiple other businesses that stay below the£90 ,000 threshold, so five businesses at£80 ,000, they can hold their employer's PAYE taxes and VATA TA taxes to as low as 7 ,200. It's unbelievable. The difference is so stark. And the reason for that is that they split their business from five people who are employed to five people who are self-employed or disguised employed. And people are forced into that. There's no blame attached to any of this, but people are forced into that because of this massive tax burden.

43:38Steph McGovern:I just want people to understand that as well. When you're saying the next door salon becomes group of micro businesses. It's basically people renting a chair, isn't it? So you've got this kind of, you've got the salon and then people coming in and working freelance. So they essentially pay that business to rent the chair. Is that what you mean? I don't have any problem with people renting chairs. I don't have any problem with people who are self-employed. I have a massive problem with the tax system. What actually happens is you get the wild west. You get people going, I'll give you 70%. I'll give you 60%.

44:08Steph McGovern:I'll do this. I'll pay the VIT on that. I'll pay the, it's an absolute wild west and we told HMRC about this five years ago they keep saying it's a legitimate model and yet do absolutely nothing about it now I know they are going this problem is too big and they run away rather than sit in a room and discuss it with us they run away so yes what you're saying is that people rent a chair supposedly they stay below that VAT threshold artificially they don't pay the 15 ,000 they would as soon as they go over the 90 ,000 in VAT and that gives them that huge tax advantage that's why the difference is so large and yeah i don't blame anyone for doing it there's thousands doing it 70 of our sector are now self-employed versus 13 in society if a government creates and makes employment so expensive then people will move to self-employment and can i just ask you a question therefore on um on your own research Have you done any modeling about if you had a lower VAT rate for hairdressing?

45:14What kind of effect that would have in terms of how many more people would move from being self-employed back to being employed by hairdressers? And therefore, what the net result of all of this would be for the tax man? Because I think the argument you're making is that the current system basically forces loads of people who would otherwise be employed to be sort of phony self-employed. They engage in tax avoidance by keeping their declared earnings below the VAT threshold. And as a result of that, actually, this is, you know, the HMRC loses revenue. So I think your argument is everybody loses from this.

45:56You know, hairdressing salons lose, but so does the tax man. Have you got any numbers on that?

46:01Steph McGovern:What I can tell you is that the turnover in VAT-based salons is flatlined over since 2009. That's cost the exchequer 2.4 billion in VAT receipts. We're saying if you arrest that or you turn that around and you lower the threshold like they have everywhere in Europe, then absolutely it will increase the turnover. And that's what it says in the CBI report. But it's so complicated. I think it's worth just spelling that out because that is amazing. So you're saying that since 2009, the revenues of hairdressing salons have flatlined and VAT for the government has since 2009 from salons flatlined. Yeah.

46:44That's astonishing. Absolutely. That's astonishing.

46:46Steph McGovern:2.4 billion difference. the the increase in turnover in vat salons it was 2.8 billion in 2009 4.3 billion it would be would be inflation bank of england inflation ours was 2.5 billion last year so it's actually descended we don't know about 2024 figures just yet because they haven't come out but we've actually decreased and the gap between those two is 2.4 billion and what that means is that none of them take on apprentices either on this issue of the next generation and apprentices if you're an employer uh and traditionally you've trained people up and you know we've all you know seen over our lives these young people who come into salons you know we have conversations with them why you know are you going to be a colorist you're going to be a cutter you know why you're here and you know you get this you know you for years we've seen these generations of of kids going straight from school into hairdressers and and getting you know fulfilling employment um how Now, how long, if you're an employer, would you need the apprentice to stay with you as an employee to make it worth your while training them up?

47:57Because obviously, one of the problems with the current system is, you know, you're going to think to yourself, why am I training an apprentice if literally the moment they qualify, they're going to go off and be self-employed? Well, you've hit the nail absolutely on the head.

48:11Steph McGovern:in Germany for instance you have to have a license for a specific period of time it takes about two years to train somebody two and a half years we we we spend about two and a half years bringing people through that cost by the time you're training an over 21 year old is probably 30 odd thousand in wages in the second and third year and you're taking time off the floor to make sure they're being trained so I would estimate it would be five years plus and maybe even more just to get your money back. And people want to do this. They want to bring people through. People take less than national minimum wage themselves.

48:46Steph McGovern:And the outcome realistically is that what the government call NEATs have reduced by about 75 % since 2016. And the prediction is that apprentices will be over by the end of this parliament. What do you mean? Sorry, what do you mean by that? sorry i didn't understand what you meant that that no more apprentices will be taken on by the industry uh and paid for by the end of this palm literally zero well that's what the cbi predicts cbi economics analysis predicts i can tell you why if you want yeah i can tell you why okay so just a little insight which i don't think anyone's really looked at and it is employees that pay all of these costs it's not businesses every single time the government reframed this it's employees that pay all these costs, employees that pay the employer national insurance.

49:37Steph McGovern:The employer national insurance for part-time workers in our sector of£15 ,000 increased by three times more than a single£150 ,000 salary in terms of relative terms. So if you have 10 people earning £15 ,000 each as part-timers, the cost of business went up by nearly£7 ,000. The cost for 150k salary went up by 2 ,300. That's three times more. So you're taxing the lowest paid jobs. You're giving us the least opportunity to improve the employment prospects of those people or increase their salaries. You're costing the individual employers jobs. And the reason it's happened, the reason it's happened is two things.

50:21Steph McGovern:The government or the civil servants within the government have listened to the wrong people and removed the wrong people. Kate Dearden and Peter kyle please sort this out listen to the right people stop being uh misled and we've got peter kyle coming on soon so and so what what's the solution what do you what what do you want to happen the solution do you know what is honestly what we've called for for years get you peter kyle kate dearden torsten bell dan tomlinson in a room together rather than rather than silo everything right spend two hours spend a morning with us and we'll give you the solutions in ireland they've reduced the threshold to 30 000 they've understood that labor intensive industries need a different vat rate now just talk to us if you don't level the playing field it's over well look peter carl is coming on we're definitely going to put this to him yeah we will definitely and then we'll report back yeah toby thank you thank you so much for your time as well because i know like just talking to you that passion comes through and everyone who's in the industry will be cheering you along for a fight in their corner so thank you to give us some respect that's all we want hey listen we love it to meet you robert's got his own hair account on social media so you know the respect goes beyond account yeah with along with my eyebrows yeah i've got an account representing my eyebrows and robert's got more than representing his hair but there we go very very good well we'll Start interacting with that, Robert.

51:50Steph McGovern:Well done. Thank you. Bye-bye. Thank you so much. All the best. Great to talk. Bye. So it was absolutely great talking to Toby. I suppose the question I want to ask you is, one of his big problems is the VAT that heaps very big additional costs on hairdressers that employ people rather than act as a sort of rental business for self-employed hairdressers. I suppose the question for me is why would you single out hairdressers for special VAT treatment when there are tons of service businesses that really struggle to get the VAT that they pay down? Because hairdressers are not literally the only industry who frankly don't have big vatable purchases.

52:49So why hairdressers rather than... I mean, let's be clear, quite a lot of what you and I do is vatable and we don't have big purchases that we can make to offset our vat liability. So if you're going to get a special rate for hairdressers, why not for you and me? But I think the point is, is that some people are getting away with tax avoidance.

53:18Steph McGovern:So therefore, it's not a level playing field in the industry. So that, you know, if you've got people who are only working up to the threshold, and then only, you know, legitimately working up to the threshold, and then taking cash on everything else and keeping that out of the tax HMRC's sites, then if you're competing with that on price and you're competing with those people, then it's not fair because you are going to be paying more in VAT. So I think it's not about just reducing it, reducing how much VAT they pay. It's about lowering that threshold, but not just suddenly making them have more cost again by lowering the threshold.

54:01Steph McGovern:From what Toby was saying, it works out as a net. And, you know, the net result for HMRC would be that they would get more money because the threshold would be lower and the VAT rate would be lower, which would make it easier for them in terms of their pricing and stuff and make it a level playing field because you wouldn't have this two tier system. So I think it's that combination of things rather than just reducing the threshold, which would then just mean they're all paying more VAT. It's to try and balance that. The argument is that it would be a twofold change in order to then have this net effect of the taxman isn't being hit, but also they aren't having to pay way more tax either.

54:44Steph McGovern:So that was my understanding of it. But, you know, VAT is a really complicated one. It's the third largest revenue raiser for the government. It's£180 billion a year. So they're not going to want to do anything that might compromise that when they can't afford it. But it does take us back to that really interesting conversation that we have with Dan Needle, which is whether we should see wholesale reform of VAT. So something more radical than just, you know, a lower rate for hairdressers. I mean, Dan's argument, which I think is a very powerful argument, is that if you lowered the threshold, you would then actually have a world in which you had better incentives for everybody to get more income.

55:28Because one of the problems with having this threshold of 90 ,000 quid is that people then actually sort of try and keep their earnings below 90 ,000 pounds. And that means, you know, everybody is worse off because it's actually a dampener on economic activity. So his view is lower the threshold, capture everybody. Everybody then has an incentive just to grow their earnings as much as possible. That is one argument for lowering the threshold. And then you've got this other argument, which is to do with the rate. As we know, all sorts of categories aren't vattable. So clothes for children aren't vattable.

56:08So much of what we eat is not vattable. Again, another argument is put vat on everything and then lower the overall rate. which, you know, and, you know, I think there's been work done which shows you could, if you put VAT on pretty much everything, you could actually increase the headline rate really very significantly from 20%. And then, you know, it seems to me there are probably some quite strong arguments for doing that because some of the exceptions, and we've talked about the Jaffa Cake anomaly many, many times, but some of the exceptions in terms of those products that don't pay VAT are literally just bonkers.

56:48So I do think, you know, the great thing about talking to Toby is it takes us back to what I think is also quite an important, more general argument, which is we have to look at indirect taxes and whether they are, in fact, certainly in terms of economic growth, whether, you know, we have indirect taxes that are the right ones if we want to be a faster growing economy. And I think this is an area where, again, the government should be a bit more radical in its thinking.

57:12Steph McGovern:Yeah, and I agree. We should probably wrap things up there. Thanks very much for listening. that's it from us on the rest is money. Bye bye. Goodbye.

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