UK firms brace for hit from tax hikes, surveys show

(Reuters) - Many British employers intend to raise prices and cut headcount because of the government's tax increases on business, with confidence among small businesses falling to a five-year low, surveys showed on Monday.

The Chartered Institute of Personnel Development (CIPD), a professional human resources sector body, said nine out of 10 employers thought finance minister Rachel Reeves' decision to raise payroll taxes from April would push up employment costs.

Of this group, 42% said they intended to raise prices and 32% said they intended to reduce headcount either through redundancies or recruiting fewer workers.

A separate survey from the Federation of Small Businesses (FSB) showed confidence among its members fell in late 2024 to its lowest level since the first quarter of 2020 when the COVID-19 pandemic hit Britain.

The surveys echoed other indicators that have shown a sharp drop in business confidence since Reeves' October 30 budget.

CIPD Chief Executive Peter Cheese said the drop in employer sentiment was the biggest in 10 years apart from during the pandemic.

"Employer confidence has been impacted by planned changes to employment costs, and employment indicators are heading in the wrong direction," Cheese said.

The FSB survey showed around a quarter of small companies expect to see a contraction in the size of their business.

"The fourth-quarter blues reported by small firms underline how urgently the government's growth push is needed," Tina McKenzie, the FSB's policy chair, said.

Reeves has said her tax increases were a one-off move to put the public finances on a stable footing while raising funds for services and investment.

Britain's economy unexpectedly grew by 0.1% in the final quarter of last year, official figures showed last week but earlier this month the Bank of England halved its forecast for economic growth in 2025 to 0.75%.

(Reporting by Andy Bruce; Editing by William Schomberg)