USA Tariffs – Impact For UK Businesses and Effects on Employees

We live in an uncertain world when it comes to economics.

On a daily basis, many things can affect how the businesses operate and whether they are profitable. Most recently, with the US president announcing higher tariffs for various markets, the financial markets are nervous and with that comes economic uncertainty across the world.

Despite a marginal uplift due to “the 90 day pause” , this week, economists from Goldman Sachs raised their assessment of odds of a recession from 35% to 45%.

What Is A Recession?

Defined as a period of at least two consecutive quarters (three-month periods) of negative growth in gross domestic product (GDP), generally meaning less money circulating in the economy, less money being spent by consumers, less income for businesses, less taxes being paid to the government, and less pay for employees. Additionally, it is harder to get a business loan, and generally harder to stay operative and profitable.

What is the potential impact of the new tariffs on UK businesses?

• Increase in costs and lower demand – with the new tariffs, the increased costs of UK products in the US will likely be passed onto (US) consumers by increasing prices. This potentially makes the UK products attractive as consumers will be more likely to opt for a cheaper American alternative (should one exist).
• Growth strategy – businesses that supply products to the US might find that they receive fewer orders, due to lower demand. This will affect growth in the US, and businesses whose growth strategy for the coming year included expansion into the US market may need to reconsider.
• General price rises – in a situation where a business can no longer sell its products as effectively and on a large scale as before in the US, this will likely lead to an increase in price of the goods outside of the US, affecting consumers in other jurisdictions too.
• Logistical issues – to mitigate costs, businesses will need to ensure that their supply chains are as efficient as possible. If the supply chain involves the US, the businesses will need the flexibility to adapt their logistics strategy to mitigate additional costs or rethink production facilities.

All of the above come down ultimately to one simple fact that is vital for any business to continue to operate: profitability, and that, regrettably, often means redundancies: fewer people to pay = more money staying in the business. However, a business’s people are an important asset, so maintaining staff morale and preserving jobs is a major consideration, especially when it comes to long-term stability and future profitability.

What Are The Alternatives To Redundancy?

1. Freeze recruitment – this is a simple way to reduce expenses and usually will not have greater employment law implications.
2. Reduce the number of non-permanent staff – this is often fast and easy to do as it is much simpler to terminate their engagement with the business. However, care should be taken when considering their employment status as different statutes attract different rights for the employed.
3. Retrain or redeploy staff – assess any possible alternative jobs and offer to retrain or redeploy the employee to suitable alternative roles. This can also be done before any redundancy process has started, but the employee’s contract of employment has to be examined carefully to ensure that any such change falls within the provisions of the contract.
4. Early voluntary retirement – early retirement is often offered to employees under the pension scheme for those who volunteer for redundancy. Employees who volunteer should be encouraged to obtain tax advice on the effect of early retirement on their future pension entitlement.
5. Temporary stoppage of work – it is possible to reduce the headcount temporarily by means of sabbaticals, unpaid leave or lay-offs. This provides a short-term solution to a problem during downtime or slower periods. However, in most cases, the contract of employment needs to contain provisions allowing employers to temporarily stop the employee from working to avoid potential claims.
6. Annual leave – the employer can ask the employees to use their annual leave allowance during the quiet period. Any such request needs to comply with relevant regulations.
7. Reduction in working hours – the number of hours worked each week can be changed temporarily (by short-time working) or permanently when the contract of employment is altered, for example, from full-time to part-time or when the employee has requested flexible working arrangements. The employer can also impose a ban on overtime work. All of these options would need to be assessed against the contracts of employment.
8. Reducing remuneration – this is a potentially controversial and unpopular way to reduce spending. It is best to lead by example with the management taking pay cuts and waiving bonuses to maintain staff morale. Reduction in remuneration can be achieved in many ways, which include:
   • • • Salary sacrifice – it generally offers tax advantages to employees and potentially offers savings to the employer too
       • Pay freeze – contract of employment often includes a periodic pay review clause, less commonly, a periodic pay increase. Therefore, in the former situation, technically, the employer can review the pay and decide not to increase it in line with the freeze. In the latter, no increase would amount to a breach of contract.
       • Reduce benefits and bonuses – as long as the benefits and bonuses are not contractual, an employer could decide to stop offering them. The benefits that could be non-contractual include the Christmas function, team days away or refreshments at internal meetings, etc. Bonuses could be discretionary. However, if the employer wants to reduce or remove contractual benefits or bonuses, they will need the employee’s consent to do so.
9. Tighten up policies – the employer may need to change their policies, like their expense, travel or enhanced sick pay policies, to try and save money.

How Can We Help?

To find out more, please look at our helpful guide, which can be accessed here: Redundancy Guide For Businesses : Wilson Browne

If you have an Employment Law specific question, do not hesitate to contact our expert team here at Wilson Browne, who will be able to provide you with tailored advice.