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UK businesses in ‘damage control’ mode as £40bn tax hike sparks investment fears

Published 26/11/2024, 07:55
© Reuters UK businesses in ‘damage control’ mode as £40bn tax hike sparks investment fears

Invezz.com - The UK government’s recent budget announcement has sent ripples across the business community, with Chancellor Rachel Reeves revealing a £40 billion tax hike aimed at stabilizing public finances.

Key measures include significant increases in employers’ national insurance contributions and the minimum wage, leaving firms grappling with how to absorb these costs.

This comes at a critical time when the UK economy is already contending with stagnant growth and fierce global competition.

Many business leaders warn that the new policies risk undermining investment and job creation, raising concerns about the broader economic implications.

Business leaders fear tax hikes will stunt UK growth

The Confederation of British Industry (CBI), the UK’s leading business lobby group, has voiced strong concerns over the tax increases.

CEO Rain Newton-Smith stated that the measures have forced businesses into “damage control” mode, hindering their ability to plan for growth.

In a survey conducted by the CBI, nearly half of the 266 respondent firms revealed plans to cut jobs, while 65% indicated a freeze on hiring.

The sentiment among executives reflects growing unease, with many considering relocating operations to countries with more business-friendly tax regimes.

Retailers warn of inflationary risks from rising wages

The budget’s increase in the minimum wage has added another layer of strain for UK businesses, particularly retailers.

Sainsbury’s CEO Simon Roberts cautioned that higher employer costs could reverse recent progress in stabilizing inflation.

This sentiment is echoed across the retail sector, where rising operational costs are expected to squeeze already thin margins.

Meanwhile, Salman Amin, CEO of McVitie’s parent company Pladis, highlighted concerns over the diminishing case for investment in the UK.

At the CBI conference, he described Britain as the group’s “greatest investment globally” but noted that the new fiscal environment is making it increasingly challenging to justify further capital allocation.

Academic criticism of uniform tax policies

Economists have criticized the government’s approach of applying blanket taxes on employers.

Many argue that targeting excess profits through sector-specific levies would be a fairer and less disruptive solution.

By taxing all employers equally, regardless of size or sector, the government risks hampering competitiveness, investment, and growth across the board.

This one-size-fits-all approach could have lasting effects on the UK’s economic dynamism, at a time when the nation’s growth prospects are already under scrutiny.

Despite the backlash, Chancellor Reeves maintains that the measures are essential for funding public services and correcting past economic mismanagement.

She argues that the additional revenue will help rebuild the UK’s fiscal health while addressing critical needs in healthcare, education, and infrastructure.

Critics argue that these measures will not only dent profitability for businesses but could also exacerbate unemployment and stifle investment, hindering the economy’s ability to recover and thrive.

CBI’s blueprint for improving the UK business climate

In response to the challenges posed by the budget, the CBI has announced plans to release a “Blueprint for Competitiveness.”

The initiative aims to provide actionable recommendations for fostering a more supportive business environment.

These include enhancing capital spending, simplifying the tax code, and prioritizing policies that attract investment and talent to the UK.

Newton-Smith expressed cautious optimism about the government’s increased capital spending but emphasized the need for a more balanced fiscal approach to prevent long-term damage to the UK’s economic prospects.

This article first appeared on Invezz.com

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