Big impacts felt by channel following NI hike 

The ramifications of increased employer National Insurance Contributions introduced by Chancellor of the Exchequer Rachel Reeves are strongly felt by channel business leaders across a range of impact zones. 

JALPA SHARMA,
CEO, DBSL

The National Insurance rise poses a major challenge for SMEs, especially those with UK-based full-time staff as it raises payroll costs, forcing businesses to prioritise cost management and carefully balance workforce planning to maintain affordability. Many businesses may consider more flexible staffing models, such as hiring contractors or remote workers, which can help reduce the direct tax impact. This approach will help save costs and open them up to a larger talent pool without added NI expenses. In the tech landscape, higher operational costs may drive companies to adopt efficiency focused solutions like automation, cloud services and AI to cut expenses. However, tech spending among end users, especially SMEs, could tighten as they deal with these increased payroll costs. Industries like retail and hospitality, which are already cost-sensitive, may slow their tech investments.

DAVID WARDELL,
DIRECTOR, EVOKE TELECOM

A recent customer conversation around investment in AI drew this response - 'Following Rachel's Budget we are spending no money!'. NIC up, fleet costs up, fuel and energy up, inflation up, interest rates going back up – is there a danger that UK plc might redirect investment budget to offset rising business costs? Will we see a new round of redundancy and outsourcing? Unfortunately, investment is optional but some costs are not. Rachel Reeves offers her wealth of business experience and advises we all need to work smarter and seek out greater efficiencies. For us that’s a sharper focus on retention, hyper attention to value proposition and ROI and more attention to payments. Increases in CGT will not dissuade everyone from looking at divestment as opposed to new investment. Dangerous times for the smaller resellers perhaps.

ADRIAN SUNDERLAND,
CEO, JOLA

At a high level, we forecast that the NI rise will increase our overheads by around two per cent in the next financial year. It’s significant but not catastrophic. I really worry about the impact on our apprenticeships and young people in general. The minimum wage increases, with a lower NI threshold and higher employer NI rates, create a triple threat to the young. Our costs to employ an 18-year-old trainee will increase by 41 per cent between 2023 and 2025, whereas our costs to employ an experienced person will only increase by six per cent. I don’t think the appetite of our customers to continue growing and improving their businesses will be affected. The £40 billion of taxes will be invested in the public sector, so we should expect technology spending via the public sector frameworks to be a huge opportunity during this parliament.

RICHARD BETTS,
CEO, VIZST TECHNOLOGY

We are considering ways of offsetting the increased expense from the NI increase by streamlining internal costs. We have reviewed ways to reduce our licensing costs by consolidating internal licenses and using AI to automate certain processes without impacting headcount. We are focused on a revised training programme to upskill our employees in areas we initially planned to hire over the coming year. This impacts our team’s growth plans and morale. We will be discussing with our customers how they can reallocate their IT budgets, without losing them. Many sectors should see sustained or increased tech spend from government incentives and funding allocations, such as utilities and sciences. The government has committed to one of the highest levels of investment in the technology space to bolster growth, as well as additional R&D funding.

IAN DUNSTAN,
MD, COBALT

Even though Rachel Reeves promised to keep £20 billion for research and development, it's not enough to help small businesses, especially in tech sectors. The focus seems to be more on keeping the economy stable and dealing with immediate financial issues, which means there's not much left for new and exciting projects. This lack of support is a significant roadblock to innovation, making it challenging for small businesses to grow and try new ideas. While the budget aims to bring stability, it's killing innovation and stifling growth. Reeves kept her promise and didn't hit the working person, she just hit their employer and the chances of any pay rise. We are an industry of survivors and will still flourish, but this feels like a kick in the teeth.

PAUL BILLINGHAM
DIRECTOR AND CO-FOUNDER, KNIGHT CORPORATE FINANCE

Businesses will look to improve efficiencies to offset the higher costs of employing people, and we may see a rise in technology spending like during the pandemic. The CGT changes were not as bad as feared and we have not seen any post-budget change to M&A activity. I think everyone recognises that it could have been much worse. However, business owners will now be paying more CGT on business sales – a capital gain of £3 million prior to the budget would have resulted in a CGT charge of circa £500k, and this has immediately increased to £580k, rising to £620k from April 25 and £660k from April 26. Anyone considering selling their business over the next couple of years will probably start the process sooner. 

CLINTON GROOME,
CEO, ESPRIA

The NI increase will significantly raise operational costs, particularly in labour-intensive areas. Overall sustainable growth will also be slowed as the ability to spend and invest in initiatives becomes more limited. Acceleration of automation is therefore required to drive down overheads, thereby powering workforce optimisation and allowing for further business flexibility. The rise will directly impact customer support and operational departments, so accelerating investment in process automation may counter these challenges and reduce manual workflow dependency. Businesses may invest in an outsourcing model to limit 'bench costs', exerting financial pressure on smaller tech firms with restrictive margins. Larger firms, while better financed to absorb the costs, could end up transferring these to customers to retain margins. Equally, this could be seen in smaller firms which could cause customers to spend less.

JAY BALL,
CEO, FLOTEK

We continue to recruit to fuel growth, but for low or no growth businesses the tax rises could put a dent in any recruitment plans. With our focus on IT services, our cost of delivery is highly correlated to changes in staff costs, and unfortunately this means customers ultimately sharing the burden. Ambitious businesses will embrace the higher return from investing in the right technology. The threat of increased CGT has been ever-present. There will always be owners looking to exit for the right price, but I don't expect buyers to bridge the valuation impact of higher employment costs and higher taxes. Funding for businesses to up-skill their teams in using AI and RPA would boost productivity and stop SMEs getting left behind. The Government is not making the link between helping SMEs to succeed and positive economic growth. Giving SMEs the confidence to invest will have a significant knock-on effect and increase future tax income.

MARK CURTIS-WOOD
NON-EXECUTIVE CHAIRMAN, BLUE ORANGE

Our own NI contributions are expected to rise by over 36%, placing additional pressure on our operating costs. To mitigate this, our strategic planning is already focused on streamlining operations and enhancing productivity, to support our team while safeguarding profitability. The increased cost of employment will have the greatest impact, particularly on recruitment decisions. To address this, we plan to prioritise growth through acquisitions and place a stronger focus on high-margin service offerings. Higher costs are likely to constrain smaller firms, slowing innovation and competition. However, by educating SMEs on how efficiency-driven technologies can enhance productivity, we can help turn this cost increase into a strategic advantage. Targeted incentives for digital transformation and cybersecurity investments in SMEs would have been particularly impactful.