UK Employers Warn Tax Rise Will Hit Investment and Pay

By David Milliken

LONDON (Reuters) –British employers have been caught off guard by a 25 billion-pound ($31 billion) tax rise at last month’s budget and plan to cut training, investment and jobs in response, a leading employers group said on Monday.

The Confederation of British Industry said a survey of its members showed 61% viewed Britain as a less attractive place to invest and nearly half intended to cut staff levels or lower pay rises after a big increase in employers’ social security payments.

The rise in National Insurance and the stark lowering of the threshold caught us all off guard,” CBI Chief Executive Rain Newton-Smith said as the organisation met for its annual conference.

“Set alongside the expansion and rise of the National Living Wage … and the potential cost of the Employment Rights Bill changes … they put a heavy burden on business,” she said.

Prime Minister Keir Starmer and his finance minister Rachel Reeves – who say speeding up economic growth is their top priority – argue the move will allow them to spend more on public services including the National Health Service.

“I’m not surprised, quite frankly, that as we’re doing the tough stuff, there are plenty of people who say, ‘well, I’m impacted, I don’t like it’,” Starmer told ITV television.

“But we’ve got to make the sort of big calls on the NHS and on schools that are really important for the here and now and for the future.”

The CBI’s complaint comes amid broader signs of an economic slowdown in Britain both before and after the budget.

Reeves has said she does not expect to have to raise taxes again by 40 billion pounds, part of the Labour Party’s first budget in 14 years.

But Britain’s budget watchdog reckons Reeves has left little room to absorb any increase in government borrowing costs without either raising taxes or missing her goal to reduce debt.

“Tax rises like this must never again be simply done to business,” Newton-Smith said.

The big rises in national insurance and the minimum wage particularly hurts CBI members such as big retailers and hospitality chains who employ many low-paid part-time staff.

Newton-Smith said greater economic stability under Labour was not enough on its own to boost growth, as reduced profits directly hit businesses’ ability and willingness to invest.

“Profit’s not a bad thing. It’s not a dirty word,” she said.

Britain has low investment by international standards and many economists see this as a key cause of its weaker productivity compared to the United States, Germany and France.

($1 = 0.7996 pounds)

(Additional reporting by Sarah Young, editing by Andy Bruce, William Schomberg and Christina Fincher)