The government’s tax hikes will squeeze profits, damage investment and “hit growth”, according to the chief executive of the Confederation of British Industry (CBI).
In a speech set to be delivered at the CBI’s annual conference later today, Newton-Smith will warn about the devastating impact of the Budget on businesses across the country.
“The rise in National Insurance and the stark lowering of the threshold caught us all off guard,” she will say.
“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.”
“[Firms] are looking with heavy hearts to cut training and investment, delay decarbonisation projects, or pass on costs to customers,” she is expected to say.
The additional costs placed on businesses will hit profit, ultimately lowering investment and stifling economic growth, she will say.
“Profits aren’t just extra money for companies to stuff in a pillowcase. Profits are investment. When you hit profits, you hit competitiveness, you hit investment. You hit growth.”
She will argue that business is the “one force” that can help the government achieve its ambition to achieve the highest sustained growth rate in the G7.
“Tax rises like this must never again simply be done to business”.
In last month’s Budget, the government announced tax rises worth £40bn, including an increase to employers’ national insurance and changes to the threshold at which the levy must be paid.
Over the past few weeks, many firms from many different sectors have cautioned about the likely consequences of the tax hike on jobs and investment. Analysis from Deutsche Bank suggests the could end up costing the economy over 100,000 jobs.
The speech comes amid growing fears that the Budget has already stymied growth in the UK. The latest purchasing managers’ index (PMI), released last Friday, showed that business activity contracted in November for the first time in a year.
Many economists put the blame on the Budget tax hikes. “The fall in the Composite PMI suggests that tax hikes announced in the Budget seem to have restrained some private sector activity,” Elias Hilmer, an assistant economist at Capital Economics, said.
Separate retail sales figures for October, which were also released on Friday, came in below expectations as well, with sales volumes falling 0.9 per cent month-on-month.
Kallum Pickering, chief economist at Peel Hunt, said that the fall in retail sales may have been due to a “sense of foreboding” ahead of the Budget.
A Treasury spokesperson said the government was forced to make “difficult choices to repair the public finances” in the Budget, but stressed the other options were worse.
“The alternatives were more austerity, more decline and more instability that would have left businesses and working people worse off,” they said.
“Despite the difficult inheritance, the Government is determined to go for growth and to work in partnership with businesses to invest in Britain’s future so we can make every part of the country better off,” they added.