25th Nov 2024 11:27
(Alliance News) - Rachel Reeves' budget caught firms "off guard" and will undermine investment and jobs, the head of one of Britain's leading business groups has said.
Rain Newton-Smith, chief executive of the Confederation of British Industry, CBI, said profit is "not a dirty word" because it underpins firms' ability to invest, but the government's actions have hampered that.
The chancellor is expected to tell the organisation later on Monday there is "no alternative" to tax rises as she holds firm against criticism of the GBP25 billion increase in firms' national insurance contributions, NICs.
Newton-Smith welcomed the new political and economic stability offered by the government after the turbulence of the Conservative years, but condemned the way firms have been blindsided by the increase in NICs and the lowering of the threshold at which they start to be paid.
She warned it will make it more difficult to achieve the economic growth sought by Reeves and Prime Minister Keir Starmer.
"What really defines growth is the decisions made in boardrooms up and down the country," she told the CBI's conference in London.
"It's CFOs [chief financial officers] asking 'Can we afford to invest? Can we afford to expand? Can we afford to take a chance on new people?'
"Well, after the budget, the answer we're hearing from so many firms is still 'not yet'.
"The rise in national insurance, the stark lowering of the threshold, caught us all off guard.
"Along with the expansion and the rise of the National Living Wage – which everyone wants to accommodate – and the potential cost of the Employment Rights Bill, they put a heavy burden on business."
In the budget, the chancellor announced around a GBP70 billion increase in public spending, funded through tax rises and increased borrowing.
Labour also raised the minimum wage, in a move praised by workers' groups and unions, but which businesses have said will force them to pass on some costs to consumers, hire fewer people or make less profit.
In a message to the government, Newton-Smith said ministers must work more closely with businesses in future after the shock of the budget.
"Tax rises like this must never again be simply done to business. That's the road to unintended consequences," she warned.
She said farmers have to contend not only with the increase in NICs and labour costs, but also the changes to inheritance tax reliefs.
"Some see those solely as personal taxes, but these are companies where the professional is truly personal, and too many are fearful for the impact, fearful they can't pass on their livelihoods to future generations."
She said across the business world "margins are being squeezed, profits are being hit by a tough trading environment that just got tougher".
But "profit is not a bad thing, it's not a dirty word" – it is the money used to "invest and grow".
"If you're a multinational, profits create projects that create new jobs in the UK rather than elsewhere. And if you're a low-margin business, profits are pay rises, health benefits, investment in technology."
Newton-Smith said the need for greater growth is "existential" for the UK.
"We face a storm of challenges, global protectionism, an ageing population at home, a need to invest in our infrastructure, our people and our communities."
In a reference to the election of Donald Trump in the US, she highlighted "the spectre of rising protectionism and sabre-rattling from across the pond".
The Guardian reported that Reeves is expected to use the conference to say: "I have heard lots of responses to the government's first budget but I have heard no alternatives."
A government spokesman said: "Last month we delivered a once-in-Parliament budget to wipe the slate clean and deliver change by investing to repair the NHS and rebuild Britain, while ensuring working people don't face higher taxes in their payslips.
"That meant difficult choices to repair the public finances and to put public finances on a firmer footing. However, the alternatives were more austerity, more decline and more instability that would have left businesses and working people worse off."
By David Hughes and Alex Daniel
Press Association: Finance
source: PA
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