Businesses are wary as Chancellor Rachel Reeves puts the final touches to her first Budget.
In the election campaign Reeves promised to lead the most “pro-business” Treasury in history, but this pledge has looked more and more dubious as rumours around the Chancellor’s fiscal plans have emerged.
The Chancellor is looking to raise £40bn in the Budget, weighted heavily towards tax rises.
After the government boxed itself in with a pledge not to increase taxes on ‘working people’, businesses are likely to be on the receiving end of many of the largest tax hikes.
Reports over the weekend suggest that Reeves wants to increase employers’ national insurance and lower the threshold at which businesses start paying the levy, moves which together could raise around £20bn.
A government source told the BBC: “There is a universal consensus that the NHS needs more money. That means asking businesses to help out”.
But business groups have warned that hiking national insurance would effectively be a tax on jobs.
“A hike in employers’ National Insurance represents a straightforward increase in business costs and takes no account of whether a business is profitable or not,” Anna Leach, chief economist at the Institute of Directors (IoD) told City AM.
“At a time when business confidence is low, hiring plans have already been hit, and vacancies are falling, this will hit employment prospects and earnings,” she added.
Andy Scott, interim head of tax policy at the Confederation of British Industry (CBI) said that many companies were “very concerned” by the potential tax hike.
“Firms have told us that increasing employers’ levies will impact their growth plans with potential implications on pay, hiring, and investment,” he said.
The national insurance increase is not the only tax raid businesses are nervous about. Reeves is also likely to increase capital gains tax on property and share sales, a move which the government hopes could raise a few billion.
But Sarah Farrow, a partner at EY, pointed out that estimates around capital gains tax were intrinsically very uncertain.
“The revenue raising potential of increases to capital gains tax rates is heavily dependent on the response of individual taxpayers,” she said. “A significant rise in rates could encourage some to hold onto their assets for longer, thereby delaying or denying tax receipts for the Exchequer.”
Leach said that rumoured taxes on investors pointed to a “growing incongruence” between the government’s growth objective and the “trailed direction of policy”.
Given fears about looming tax hikes, survey after survey has pointed to worsening business sentiment in the weeks leading up to the Budget.
Just last week, S&P’s purchasing managers’ index (PMI) showed that business confidence had fallen to its lowest level since November last year.
Chris Williamson, chief business economist at S&P Global Market Intelligence said sentiment had been impacted by “gloomy government rhetoric and uncertainty ahead of the Budget”.
While the government has attempted to limit the extent of tax hikes on working people, consumers have not been immune from Budget fears either.
Over the past two months, GfK’s consumer confidence index has given up almost all of the gains that it has made in 2024. Neil Bellamy, consumer insights director, put the blame squarely on the Budget. He said that consumers were in a “despondent mood”.
Leach suggested this was no great surprise. “The effects of higher national insurance costs will be borne by workers,” she said.
A HM Treasury spokesperson said: “As the Chancellor made clear at the International Investment Summit in London: when we said we would end instability, make growth our national mission and enter a true partnership with business, this government meant it.”