Five ways to respond positively to the budget

Do more with your resources- improve productivity

According to a government research briefing in 2023, ranked on GDP per hour worked, the UK came fourth highest out of the G7 countries, with the US highest and Japan lowest. UK productivity was around 18% below the US. Historically, UK labour productivity has grown by around 2% per year, but since the 2008/2009 recession, it has risen more slowly. The effects of the pandemic presented significant challenges in measuring productivity, but it appears the pre-pandemic trend of sluggish productivity growth has continued.

ENGAGED STAFF

Research shows that one of the best ways to achieve this is to have more engaged staff. According to research by Gallup undertaken with 1.4 million employees, organisations with a high level of engagement have 22% higher productivity. But strong employee engagement brings much more, including:

• Highly engaged organisations have double the rate of success of lower engaged organisations
• Top-quartile firms for engagement have lower absenteeism and turnover of staff
• Engagement also improves the quality of work and health. For example, higher-scoring business units report:

• 48% fewer safety incidents;
• 41% fewer patient safety incidents;
• and 41% fewer quality incidents (defects).

ARE YOUR STAFF ENGAGED?

So, how do you recognise an engaged member of staff? They have a passion for their job and the organisation, which means they believe in what the organisation is doing and how it changes the world for the people it works with or supplies. This means they need to know what the organisation stands for, its values and vision, understand how they contribute and why their job is important.

SIMPLE WAYS TO RAISE ENGAGEMENT

Suppose you want your staff to be more engaged or to feel more engaged yourself. In that case, a good place to start is to find some inspirational stories about what the organisation has done to share. After that, ensure you have clear values ranked so everyone knows what to do and what will make them a hero or a villain.

OTHER WAYS TO RAISE PRODUCTIVITY

Higher labour costs mean it is important to boost productivity so you get more return on your investment in every way you can. Other things to start doing are

• using AI - I found the Gallup research above by using Microsoft Copilot - I knew engaged staff were important, and that was the quickest way to find some supporting research
• Support your staff to be as mentally well and physically fit as they can be, as this will boost their productivity at work and reduce sick leave. Ensure your health and wellbeing policy supports staff to be as fit as possible, e.g. make it easy for them to access medical care like a GP appointment by being flexible and not penalising them for the time taken.

Offer staff the option to swap salary for pension.

Suppose your staff swap some of their existing salary or a pay rise to pension contributions. In that case, the total amount of money goes into their "pension pot" as neither employer nor employee pays national insurance on the contributions - this is often called a salary sacrifice scheme. You obviously need to talk to your financial adviser, but with the employer's national insurance contributions increasing to 15% from 6 April 2025 and the secondary threshold above which employer contributions are paid for an employee being reduced from £9,100 to £5,000 – again from 6 April 2025 this could be a positive way to give benefit to staff and potentially offer financial benefits to you as an employer.

Attract more money from wealthy individuals if you are a charity.

Starting 6 April 2025, there will be changes to National Insurance, along with an increase in the National Living Wage by 6.7%, raising it to £12.21 for adults over 21. The National Minimum Wage for 18 to 20-year-olds will rise to £10.00 per hour, reflecting a significant increase of 16.3%. This change is a move towards establishing a single National Living Wage for all adults over time. Both of these measures are likely to affect the cost base for employing charities, which could, in turn, impact the funds available for Charity Objects and their beneficiaries.

TAX CHANGES FOR THE RICH

In the recent budget, several measures were introduced that will affect the assets and wealth of individuals, particularly in relation to charities. Notably, inherited pensions will be included in the inheritance tax estate upon death starting from 6 April 2027. The Business Property Relief and Agricultural Property Relief will be limited to 100% relief on the first combined £1 million of assets, reducing to 50% for amounts exceeding that threshold, effective 6 April 2026. Furthermore, shares that do not qualify as "listed" will only be eligible for Business Property Relief at a rate of 50% from 6 April 2026.

There will also be increases in the lower and main rates of capital gains tax (CGT); the lower rate will rise from 10% to 18%, and the higher rate will increase from 20% to 24%, effective immediately. These new rates will align with the capital gains tax rates for residential property, which remain unchanged.

One significant change is the gradual increase of the Capital Gains Tax rate that applies to shares qualifying for either Business Asset Disposal Relief or Investors Relief. Currently set at 10%, this rate will rise to 14% starting 6 April 2025 and then to 18% on 6 April 2026. While qualifying shareholders will benefit from the lower CGT rates, this change means higher taxes for those holding shares.

These changes create opportunities for charities, as wealthy individuals opt to increase their charitable giving of assets rather than pay higher taxes on those assets. The reduced inheritance tax rate of 36% remains applicable for estates that allocate at least 10% to charity in their wills (after accounting for other reliefs and exemptions). This provision may serve as a favourable estate planning option for affluent individuals.

CICs might want to consider becoming charities.

In the budget, Employers' NI payments increased to 15% from next year on wages above £5,000; however, for small organisations, this was offset by changes in Employment Allowance. It has been increased from £5,000 to £10,500 for all employers – with the £100,000 limit above which the Employment Allowance would no longer be available for an employer being removed. This may bring the smallest employers out of the requirement to pay National Insurance, despite the increases.

Currently, you can claim Employment Allowance if you're a business or charity (including community amateur sports clubs) and your employers' Class 1 National Insurance liabilities were less than £100,000 in the previous tax year. You can also claim if you employ a care or support worker. You can claim Employment Allowance for the last 4 tax years dating back to the 2018 to 2019 tax year. Some of the rules for claiming are different. However, you cannot claim if you're a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you're a charity. You also cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

If you are a Community Interest Company (CIC) and find yourself unable to access the Employment Allowance due to the level of your public sector contracts or funding, or if you anticipate this situation in the future, it may be financially beneficial to consider changing your legal structure to that of a charity. By becoming a charity, you could qualify for the Employment Allowance, which might eliminate your obligation to pay Employers' National Insurance, depending on your size. Please call me if you'd like to discuss the feasibility of converting from a CIC to a charity.

Be innovative and attract more money, customers and donors

Innovation is crucial for staying ahead in a niche and identifying new growth opportunities as existing ones decline. Growth encompasses sales, reputation, knowledge, relationships, and impact.

As the relationship builder above shows, it's essential to offer products at every stage of your sales funnel and make it easy for potential clients or donors to engage before a significant commitment. Meeting unmet needs doesn't require groundbreaking inventions; it often involves improving or repurposing existing products for a new market or adapting to market changes.

Matching your competition in product quality allows you to be considered, paving the way to address unmet needs. Innovation can also mean combining existing ideas in new ways, updating processes through new equipment and software, or enhancing skills within your team. All of this should either attract more money or save money.

One area to look at if you are looking to innovate but need help knowing where to begin is collaboration. Do you need to do everything you do, or could you collaborate, thus making two or more organisations more efficient and capitalising on what each does well? Our Collaboration Optimiser(c) can give you some ideas on why and where to collaborate, and we have separate ones for charities and businesses.

Conclusion

If today you have felt low because financially things look tougher after the budget. In that case, I hope this blog shows there are positive acts you can take, not just to begin considering redundancies.

Here are some more blogs and information that give more detail on some of the issues listed above

It's the time to think seriously about collaboration. Here are three reasons why

How treating staff well could solve the UK's productivity crisis and what staff want

Action Marketing plan