More than half of businesses would cut staff or stop hiring if taxes are hiked at this year’s Budget, a leading survey of accountants has found, a fresh warning that Chancellor Rachel Reeves risks inflicting further damage on the UK jobs market.
Reeves has publicly said that she was considering making tax hikes at this year’s Budget as her £9.9bn headroom looks set to be taken out by a fiscal hole valued at around £30bn.
A survey of around 650 business professionals has sent Reeves a fresh warning on the damage further tax hikes could inflict on firms.
The Institute of Chartered Accountants in England and Wales (ICAEW) said data showed 56 per cent of businesses claiming they would reduce headcount or introduce a recruitment freeze if taxes were raised at the Budget.
The survey also showed some 45 per cent of firms claiming they would be prepared to raise prices to offset costs, which would go against Reeves’ ambition to curb inflation later this year.
Data also showed that two in five firms (39 per cent) would cut investment, which could further damage growth hopes in the UK economy.
Reeves warned taxes are ‘holding back growth’
In a speech on Friday, ICAEW chief executive Alan Vallance is set to call on Reeves to avoid raising taxes as Britain “faces a damaging cliff edge if the Chancellor decides to raid businesses again”.
“Policymakers talk a lot about growth, but the businesses trying to deliver it are being held back,” Vallance will say.
“Firms also tell us it’s too expensive to do business, with confidence in free-fall over skyrocketing operating costs amid high taxes, an outdated business rates system and soaring energy bills.
“The UK now finds itself at an economic inflection point ahead of a crunch Budget. We know that businesses stand ready to drive growth forward, and will do so once they’re given the tools, incentives and opportunities.”
He will also point out that reform at HMRC aimed at solving complex systems and low service standards was necessary to restore business confidence.
“Businesses face too much uncertainty with frequent rule changes and mixed messages on tax make planning impossible, leaving firms wary of making long-term investments.”
The ICAEW’s survey is set to point to the damage previous tax rises have done on various sectors, with eight in ten respondents claiming they were negatively impacted by higher business costs in April when higher employers’ national insurance contributions (NICs) kicked into effect.
The production sector suffered most, according to the survey, as the transport and storage, as well as manufacturing and engineering, were the sectors with the highest proportion of negative responses.
“The UK now finds itself at an economic inflection point ahead of a crunch Budget. We know that businesses stand ready to drive growth forward, and will do so once they’re given the tools, incentives and opportunities.”
Business groups have said the risk of tax hikes at the Budget would damage business confidence alongside the introduction of new hiring regulation in the Employment Rights Bill.
The unemployment rate has jumped to 4.8 per cent while payroll numbers have fallen by around 150,000 since the Budget.
A freeze on hiring would also likely further exacerbate the decline in job posting as vacancies have fallen for 39 consecutive periods in official data published by the Office for National Statistics.