Rachel Reeves’ tax raid has sent business confidence tumbling to its lowest level since the first Covid lockdown, business leaders say.
They say the Chancellor’s record tax rises are undermining economic growth and cutting off investment plans, with bosses forced to cut pay rises, lay off staff and raise prices to meet the £25 billion national insurance increase.
The findings published in a study by the Institute of Directors (IoD) will be a blow to Sir Keir Starmer’s embattled government.
The Prime Minister received his first resignation from Cabinet last week when Louise Haigh, the transport secretary, resigned after details of her criminal conviction a decade ago emerged.
Sir Keir has also come under fire for spending significant time abroad as key policies run into trouble at home, with trips last month to countries including Azerbaijan, Brazil, France and Hungary.
Sir Keir Starmer is under fire for spending significant time abroad as key policies run into trouble at home – Carl Court/Getty Images Europe
Andrew Griffith, the Conservative business secretary, said the survey showed “a catastrophic loss of business confidence under this government to an all-time low, barring the pandemic”.
“Business leaders tend to have a natural optimism, but the summer of trash talking about the economy, Labour’s ‘jobs tax’ and the union-inspired employment bill are eroding their confidence.
“It is the jobs and investment that will pay the price,” Mr Griffith said.
Sir Tim Martin, the Wetherspoons boss, said: “All democratic governments must manage the relationship between an economic horse and a public services cart – society needs both. This government has discouraged and discouraged the horse, as the IOD investigation shows.”
The IoD’s optimism tracker fell to minus 65 in November, a sharp decline from minus 52 in October and the lowest reading since April 2020.
Investment intentions and workforce expectations have both fallen deeper into negative territory, which does not bode well for future economic growth and employment, while planned wage increases are also shrinking.
When asked about the impact of the NI increase, 50 percent of bosses said they expected to give workers smaller pay rises as a result, while 44 percent planned to increase prices for customers and 43 percent expected the size reduce their workforce.
A separate survey by the London Chamber of Commerce and Innovation (LCCI) shows that business confidence in the government’s economic program is collapsing.
One in five family businesses surveyed by the trade body said they would rather close shop than hand their business to the next generation due to the changes to inheritance tax.
Meanwhile, only one in four members of the body said they were confident the government would deliver growth, according to this month’s survey.
Anna Leach, chief economist at the IoD, said the budget risks wiping out private sector economic growth.
“Rather than rebuilding the foundations, the budget has undermined them, damaging the ability of the private sector to invest in their businesses and their workforce,” she said.
“The clash between the government’s intentions to tackle inactivity and the sharp increase in labor costs is shocking. There is now a significant risk that private sector growth will stagnate due to the scale of the reset that business needs.”
Karim Fatehi, CEO of LCCI, said: “This rapid investigation has confirmed our worst fears; Business sees the combined package of higher employer national insurance contributions, business rates cuts and the Employment Rights Bill as a serious threat to their businesses in the coming years.”
Last week started with Ms Reeves facing the wrath of the business community at the annual conference of the Confederation of British Industry (CBI).
The Chancellor was told by Rain Newton Smith, the business group’s chief executive, that the surprise National Insurance increase should never happen again.
“These types of tax increases should never be a business-only issue again,” she said.
Ms Reeves is still reeling from the endless wave of criticism from bosses who feel betrayed by the sharp rise in taxes employers pay on their workers’ pay packets.
Hollywood Bowl chief executive Stephen Burns said the tax increase came as a shock because Labour’s manifesto promised no increase in National Insurance.
“It is harmful to business. The National Insurance increase was unexpected as we were told NI would not be offered,” he said.
“It is clear that catering companies in particular will have to work very hard to limit these costs.”
The Chancellor has argued that the manifesto pledge only applied to NI paid directly by employees, and not to that paid by their employers.
The headline rate will rise from 13.8% to 15%, while the wage threshold at which it comes into effect will fall from £9,100 to £5,000 per year, meaning more low-paid and part-time workers will be affected.
Alan Morgan, the boss of Bella Italia owner Big Table Group, said: “This budget is completely disastrous for any business that employs many people.
“It is no surprise that trust is being damaged; If the government does not reverse the ridiculous changes to the national insurance threshold, it will seriously damage the lives of many people.”
A FTSE 100 retail chief told The Telegraph that the Labor government had failed to deliver on its promises to restore stability and growth.
“If you take £25 billion out of corporate profits and cut tax relief for entrepreneurs and British farms and threaten new employment rules that make it riskier to employ people, it would be astonishing if confidence rose,” he added.
“Labour promised stability and growth and has so far delivered gloom and surprise. I don’t think it’s too late to repair the damage, but it will require a significant change in tone and much less PR posturing.
“There is nothing fundamentally worse about the UK economy, but confidence in its management is declining.”
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