How did the measures announced in the Labour government’s first budget affect dental practices? Practice Plan Group Director, Nigel Jones, spoke to Partner and Head of Dental at accountants UNW, Mike Blenkharn, to get his views.
Nigel: So, with regards to October’s budget, Mike, what have you seen happening and how are you imagining practices will prepare for the changes to come in April?
Mike Blenkharn: If we focus purely on outgoings and expenses, the main change from the budget was the announcement that Employer’s National Insurance was going to increase. The current rate of 13.8% is going up to 15%. Also, the earnings threshold for what an employee earns before an employer has to pay national insurance on it is being reduced from £9,100 down to £5,000.
When we’ve done modelling for clients, those two changes alone will broadly affect a dental practice by increasing the wage costs by about 3% to 4.5%. That’s a big hit because wage costs are probably the single largest outgoing for a dental practice. So, an increase of 3% to 4.5% on such a large cost is significant. In addition to that, the national living wage increases from April. And again, that will probably have an impact of anywhere from 6% to potentially 10% on overall wage costs depending on the strategy the practice employs and how they want to re-tier and re-base their staff costs, not just for the lower earners in the team.
Nigel: Those sorts of figures seem quite intimidating, particularly if you are an NHS practice. In places like England and Wales where there isn’t the flexibility to pass costs on to patients, what sort of actions are they going to take? What sort of things are you seeing practices thinking about?
Mike: Some of the immediate decisions practices took were to do with pay rises. For example, if their normal pay rises were from the 1st of January, they were reducing them by a percentage or two to factor in the increase in wage costs. So, in reality the employees have lost out potentially by not having that pay rise.
Looking specifically at NHS practices, they also don’t get access to what’s called the Employer’s Allowance, which helps reduce an employer’s National Insurance costs as a practice that’s primarily or mainly NHS isn’t entitled to that. So, they deal with the full cost of the increase in National Insurance.
Nigel: The budget was pitched to the general public as being about creating funding to help save the NHS. So, it seems perverse that fully private practices are less impacted than NHS practices, partly because of the inflexibility of passing costs on and partly because some of the support isn’t available to NHS practices, that is to private practices. What’s your take on that?
Mike: It’s always been a bizarre ruling in respect to the Employers National Insurance Allowance. It’s frustrating because, looking at the dental practice sphere, the one type of business that can’t pass on any costs is a wholly NHS practice. And the one type of practice that is suffering the worst from this increase in Employers National Insurance is an NHS practice.
To really drive it home, I use the leaky bucket analogy. If you have a bucket of water and the holes in the bucket are your outgoings, suddenly the Labour government has increased the size of those holes, so there’s more water leaking out of it. However, as an NHS practice, the amount of water coming into that bucket is fixed. You don’t have the ability to increase that income as a private practice may have. So certainly, an NHS practice is severely affected, but it does affect all business owners in the sense that they do have to review pay rise structures for team members.
I touched on the fact before that the National Living wage is going to affect the lower earning team members. However, if you are increasing the lower earning team members’ pay, you naturally have to increase the pay of more senior or well-paid team members to maintain the banding structure you may have.
Nigel: I guess that ripple effect is a difficult one to quantify because there’ll be a bit of ducking and diving to try and make sure you can keep everyone happy without massively overloading yourself with cost.
Mike: Absolutely. Paying wages is a regular cash outflow. So really practices do have to monitor what their income needs to be to maintain a profit level, let alone to try and increase a profit level if they do want to drive value in the practice. So, it is going to be interesting how practice owners deal with this. There’s the human element to consider of how things affect your team members, but also there’s the financial element of what needs to be done, or what can be done, to grow the income to cover the increase in costs.
About Nigel
Nigel Jones is a Director at Practice Plan Group. He has been working in the dental sector for around 35 years and has a special interest in the development and future of NHS dentistry in the UK.
His knowledge and passion for dentistry has led him to become a trusted voice, offering invaluable advice on how to strategically and successfully run a practice and a member of Dentistry’s Top 50.
About Mike and a link to his website
Mike Blenkharn is a Chartered Certified Accountant and Head of Dental at UNW LLP and has over ten years’ experience in working with dental professionals. He has overall responsibility for more than 300 practice clients and is actively involved in advising clients in respect of accounts, practice purchases/sales and restructuring.