Tax rises announced during the recent budget will hit businesses rather than encourage growth, the head of one of the UK’s most prominent business groups has warned.
The Confederation of British Industry (CBI) director general Rain Newton-Smith joined a chorus of voices in criticising chancellor Rachel Reeves’s fiscal measures, which the Labour Party claims are needed to plug a £22bn “black hole” left by 14 years of Tory government.
Labour put growth at the heart of their campaigning during the last general election, but business believes the £40bn in tax rises announced last month – the largest such increase at a budget since John Major’s government in 1993 – will stifle investment.
Ms Newton-Smith told the CBI’s annual conference that while some measures helped its membership, the “heavy” additional tax burden placed on business caught everyone “off guard”.
She made her remarks just hours after Kingfisher – the owner of Screwfix and B&Q – became the latest major employer to warn of a big impact; a £31m hit from higher employer National Insurance contributions (NICs) next year alone.
“Too many businesses are having to compromise on their plans for growth”, Ms Newton-Smith said.
“Across the board, in so many sectors, margins are being squeezed and profits are being hit by a tough trading environment that just got tougher.
“And here’s the rub, profits aren’t just extra money for companies to stuff in a pillowcase. Profits are investment.”
Ms Newton-Smith added: “When you hit profits, you hit competitiveness, you hit investment, you hit growth.”
In an interview with Sky News following her remarks, she insisted government listen to her members’ concerns, including over the looming shake-up of employment rights.
Ms Newton-Smith refused to say if the relationship between business and Number 11 Downing St had been harmed by the budget, but warned that working people – especially the lower paid – would lose out through the changes to employer NICs.
“We will always be a critical friend, we will always work with the government on how we help them implement the policies of the day”, she said.
The Office for Budget Responsibility (OBR), which monitors the government’s spending plans and performance, has previously said most of the burden from the tax increase will be passed on to workers through lower wages, and consumers through higher prices.
Last week, dozens of retail bosses signed a letter to the chancellor warning of dire consequences for the economy and jobs if she pushes ahead with budget plans.
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Up to 79 signatories joined British Retail Consortium’s (BRC’s) scathing response to the fiscal announcement, which claimed Labour’s tax rises would increase their costs by £7bn next year alone.
It warned that higher costs, from measures such as higher employer National Insurance contributions and National Living Wage increases next year, would be passed on to shoppers and hit employment and investment.
The letter, backed by the UK boss of the country’s largest retailer Tesco, said: “The sheer scale of new costs and the speed with which they occur create a cumulative burden that will make job losses inevitable, and higher prices a certainty.”
‘Businesses will now have to make a choice’
A few days after the budget, Chancellor Reeves admitted she was “wrong” to say higher taxes were not needed during the election campaign – as she warned businesses may have to make less money or pay staff less to cover a tax increase.
But she claimed the previous government had “hid” the “huge black hole” in finances and she only discovered the extent of it once her party was voted in.
She told Sky News’ Sunday Morning With Trevor Phillips: “Yes, businesses will now have to make a choice, whether they will absorb that through efficiency and productivity gains, whether it will be through lower profits or perhaps through lower wage growth.”
