Concerns have been expressed about the potential negative impact Labour’s proposed policies on income tax and the national minimum wage could have on UK SMEs.

Minimum wage proposals

Ed Miliband has revealed Labour’s plans, should they win the next general election in 2015, to address low pay by introducing a ‘living wage’. This would see the minimum amount worked out based on average earnings.

Katja Hall, Deputy Director-General at business lobbying organisation CBI, believes the current national minimum wage system has worked well in raising wages for the lowest paid because it has been left to the independent Low Pay Commission and not politicians to set the rate.

She said: “A government proposed target would undermine the Commission’s independence. The simplicity of the national minimum wage is one of its strengths, but ultimately pay must reflect productivity.

“The living wage takes no account of a businesses’ ability to pay, particularly smaller firms. That’s why it should remain voluntary, and reporting on it therefore isn’t appropriate.”

Income tax

Shadow Chancellor Ed Balls has announced that Labour would be aiming to reverse the coalition’s reduction of tax for those earning more than £150,000 by bringing back the 50% income tax rate.

While increasing tax for high earners has been deemed a fairer way by Labour of handling the deficit, the latest Close Brothers Business Barometer survey shows SMEs are worried about the impact this could have on the economy.

More than half of the small businesses surveyed believe this move would stifle entrepreneurship, while 20% think talent will be driven away. Many firms expressed concerns about the damaging effect tax increases would have on their cash flow.

David Thomson, CEO of Close Brothers Invoice Finance, said: “We need to ensure we have the right conditions to allow businesses to grow and flourish. It’s important that our top talent isn’t driven elsewhere due to unfavourable tax rates and rising interest rates.

“Entrepreneurship will be the key to getting the economy back on track and ensuring our GDP continues to grow at the rate the International Monetary Fund has predicted.”

What are your views on Labour’s proposals? Do you have any concerns as a small business owner? Let us know on Twitter @TheInsuranceOct.