The Impact Of N.I. On Letting Agents
There have been a lot of articles about the impact of the recent National Insurance increases on pubs, shops and the big supermarkets. However, no-one yet has a written about the impact on estate agents and letting agents and the impact will be quite serious.
Let’s look at the impact on a small letting agent that turns over £500,000 p.a. If it is well run it might make a profit of £75,000 p.a. after paying a commercial salary to the person who runs it. Letting is a labour intensive activity so the salary bill could easily be up to 50% of the turnover – £250,000 p.a.
A 1.2% rise in employees N.I. rates would add £3,000 p.a. to the salary bill but the increase doesn’t work like that. The threshold for N.I. has been reduced to just £5,000 p.a. Depending on the mix of part-time staff to full-time staff this could easily add another £5,000 p.a. to the salary bill. Finally, the minimum wage has increased sharply so if this company is employing a young trainee this could add another £2,000 to the salary bill. This comes to a total increase of £10,000. This means that the profit drops by over 13%
Business owners will not be able to simply absorb this cost themselves so they could do one of 5 things . Firstly, they could reduce salary levels. If the staff were going to get a 4% pay rise this year they may find that they now only get 2.%. Secondly, they might employ less part-time people as their employment cost has been increased disproportionately. This is grossly unfair on working parents who rely on this income to make ends meet. Thirdly, they might stop employing trainees on the grounds that you can now employ a more experienced person for the same salary. If they do then how will young people ever get a start in life.?
Most worryingly of all however employers could start to make redundancies and invest in automating their processes through proptech and AI. This has already started and the increase in labour costs will accelerate the process. Not so long ago it was commonly accepted that a property manager could only manage on a maximum of 100 properties. Now, thanks to proptech it is usual for property managers to manage 200 properties each and in some firms they are managing 300 properties or more. How does this help the working people that Labour claim to support?
The last option of course is for businesses to increase their charges or fee levels. If they do this landlords will inevitably increase rents to cover the costs so the burden will end up falling on their tenants.
Despite all their protestations about being pro-industry and pro-growth our new government still seems to believe in the magic money tree. Unfortunately it simply doesn’t exist and in a free market an increase in the cost of running a business will inevitably be passed on to the customer.
Adam Walker is a business sales broker who has specialised in the property sector for 32 years.