The British Beauty Council on beauty sector impacts from upcoming budget changes

A British advocacy group for the personal care sector is raising concerns over unexpected industry impacts from upcoming changes to wage and national insurance contributions in the UK. The British Beauty Council says the new budget may result in an annual increase in business costs and change employment models in the hairdressing and beauty markets.

Personal Care Insights previously reported in the British Beauty Council’s recent “Taxing Beauty” report, which assesses the potential impact of the new budget on the hairdressing and beauty services industry.

Victoria Brownlie, chief policy officer at the council, provides us with more details about the report and how the advocacy group is considering unintended impacts, like the underground economy, in its policy recommendations to the UK government regarding the new budget. 

Starting in April 2025, the national minimum wage in the UK will increase 16% for workers 18 to 20 years old from £8.60 to £10 ($US10.62 to US$12.35). The national living wage for those above the age of 21 will increase 6.7% from £11.44  to £12.21 (US$14.13 to US$15.08) per hour.

The council highlighted that increased wages and insurance would result in an annual increase of over £400 million (US$508 million) in beauty industry staff costs, equivalent to approximately 20,000 jobs, according to the report. 

It also predicts that reducing the National Insurance threshold from £9,100 to £5,000 (US$11,250 to US$6,181) will cost the industry £240 million (US$296.69 million) per year.

The advocacy group emphasizes that the UK beauty industry is particularly vulnerable because most beauty businesses are small, with just a handful of employees. These small businesses could take on an unsized financial burden, ultimately leading to a drop in employment overall.

What prompted the British Beauty Council to create this report?

Brownlie: Due to the labor-heavy nature of our industry, we knew the new measures would have a drastic impact on the beauty sector, so we commissioned Pragmatix Advisory to work on a forecast for the likely impact of minimum wage and employment tax-related measures due to the budget.

Now that we have this model, we have the statistical evidence we need to reinforce our policy requests to the government. With the knowledge that the measures could put 20,000 jobs at risk, we now know to push for business relief and grants in other areas to ensure a pipeline of jobs and talent to the sector. 

We will continue to reiterate the possible impact of these fiscal measures on the government to ensure they are fully aware of the unique challenges facing beauty in January 2025 and beyond. 

The report mentions “disguised employment” and an increase in the “underground economy.” Could you explain how the budget will change the beauty sector and potentially change employment models in the UK?

Brownlie: There is no doubt that, due to the fiscal measures introduced, business owners will be faced with difficult decisions in order to maintain their businesses. We predict the sector will turn toward increasingly self-employed models in order to ease the NI burden. Disguised employment refers to business owners that rent chairs or spaces to self-employed individuals but have expectations considered similar to that of an employer, such as specific working patterns, leave, uniform etc. This is against the law. The underground economy refers to businesses that operate without fully declaring any or all of their earnings to HMRC in order to avoid paying taxes. This is also against the law.

The British Beauty Council has asked the government to reform some of these changes, such as reassessing VAT policy. How would this reassessment help prevent some of the challenges you outlined?

Brownlie: The British Beauty Council believes that the current VAT system stifles growth, business investment and development by hitting businesses with a burdensome 20% tax bill as soon as the minimum threshold of £90,000 (approximately US$110,900) has been met. It supports cross-industry calls to reevaluate the current rates and mechanisms for paying VAT, such as looking at reduced rates or applying a tapering mechanism in order to unlock growth and reduce the impact of VAT liabilities on the hair and beauty service sector small to medium-sized enterprises (SMEs). A tapering mechanism, for example, would reduce the current issue of businesses deliberately staying under the VAT threshold in order to avoid the 20% tax bill, which is most prevalent in the hair and beauty services sector, which will, in turn, unlock additional economic activity.

How does the British Beauty Council balance the impact of the minimum wage increase on beauty sector employees with the impact on companies when making this guidance to the government?  

Brownlie: The British Beauty Council supports fair pay increases for those working and learning in the beauty industry – this is essential for attracting talent into the industry. However, these wage increases must be balanced against the rising costs for business owners; otherwise, the government risks completely disincentivizing employment. 

Reflecting on this year’s budget in the UK, the apprenticeship and staff wage increases were announced alongside hugely crippling National Insurance and business rate cost increases set to cost the industry £400 million (US$494 million) – this is a huge burden for business owners to take on all at once and could lead to fewer opportunities and roles in the immediate future as well as longer term.