Labour’s concessions won’t solve the fundamental problem for family businesses

Labour's recent Budget has included several measures beneficial to family businesses, which constitute 93% of firms in the UK, employing 15.8 million people and contributing £422 billion in taxes annually. The Chancellor expressed willingness to collaborate in safeguarding family businesses, acknowledging their crucial role in the economy.

However, it would be premature to celebrate these advancements. The immediate priority should be converting these tentative gains into robust investment, employment, and growth across the nation. A pressing concern remains the restoration of full business property relief, which was significantly reduced under the previous Labour government's Chancellor, Rachel Reeves.

This issue demands ongoing advocacy for a tax system that promotes long-term ownership, investment, and successful succession. Though the government acknowledged the excessiveness of their decision to hike the inheritance tax threshold for family firms, the problem persists. The impact is evident, with families now facing an inheritance tax liability of up to 20% on the value of their business above the revised threshold.

Consequently, numerous family-owned enterprises and farms are experiencing adverse effects, with 58% of surveyed business leaders reporting repercussions from the changes. A survey by Family Business UK of over 530 business leaders highlighted that 58% had been affected, with 58% pausing or cancelling planned investments, 23% reducing headcount or delaying recruitment, and 11% anticipating downsizing in the upcoming year due to the reforms.

The government must fully reverse these previous Chancellor's changes, as they have undermined confidence and consumed substantial political capital. While the budget provides some relief through business rates reduction, which is advantageous for smaller family firms particularly in high streets and retail, hospitality, and leisure sectors, it is insufficient.

The system requires fundamental reform for more equitable outcomes. Additionally, the modest rise in the minimum wage for younger workers is a step in the right direction, although some firms may still struggle with increased labor costs. However, targeted assistance with hiring costs would make a significant difference. Neil Davy, CEO of Family Business UK, emphasized the importance of family businesses in job creation and the need for systemic reform to support the next generation, especially in light of the NEET crisis and the challenges posed by artificial intelligence and other economic factors.