The UK faces a slowing economy due to a £40 billion tax increase, impacting businesses and investment.
- Chancellor Rachel Reeves’s budget implements significant tax hikes, affecting National Insurance and Capital Gains Tax.
- Concerns arise from business leaders over the financial strain and potential hiring challenges.
- The budget balances public finances but could hinder Britain’s growth ambitions.
- Reactions are mixed, highlighting both potential benefits and drawbacks for various sectors.
The UK economy is expected to experience reduced growth as the new budget introduces a £40 billion tax hike. This measure, led by Chancellor Rachel Reeves, is drawing scrutiny from business leaders and economic experts alike.
One of the most significant changes in the budget is the increase in National Insurance contributions by 1.2 percentage points for employers, which raises the rate to 15% starting in April. This change is anticipated to generate £25 billion but has sparked concern among businesses. Rain Newton-Smith, Chief Executive of the CBI, noted the financial strain this places on businesses and its potential to hinder hiring and wage increases. She emphasized the need for greater private sector investment to meet the UK’s growth targets, especially in infrastructure and green energy.
Changes to Capital Gains Tax are also drawing attention. The lower rate has increased from 10% to 18%, and the higher rate has moved from 20% to 24%. Muj Choudhury, CEO of RocketPhone, highlighted the potential negative impact on Britain’s tech and AI sectors, which rely heavily on high-risk capital for growth. He expressed concern that increased CGT could deter tech entrepreneurs already wary of rising taxes and costs.
For smaller businesses, the heightened National Insurance contributions are likely to introduce further challenges. Todd Davison of Purbeck Personal Guarantee Insurance warned that this could be a critical blow to small enterprises, potentially resulting in limited hiring, increased prices, or, in some cases, closures. Businesses in labor-intensive sectors like hospitality, retail, and leisure may face the most pressure.
Despite the challenges, there are positives for small businesses. The budget offers relief through an increased Employment Allowance, which helps ease the NIC burden for smaller payrolls. According to Michelle Ovens CBE, founder of Small Business Britain, this shows the government’s recognition of the vital role small businesses play in the economy, offering optimism in the face of NIC and minimum wage hikes.
Extending the freeze on inheritance tax thresholds until 2030 elicited mixed reactions. Rachel Reeves defended the tax increases as necessary for addressing deficits in public finances and funding vital compensation efforts, including those for the Post Office Horizon and infected blood scandals. Her emphasis on fiscal responsibility is aimed at safeguarding critical sectors like healthcare, marked by an additional £22.6 billion for the NHS.
However, business leaders remain cautious about the potential negative impacts on the UK’s competitive edge. Stephen Phipson, Chief Executive of Make UK, acknowledged budget challenges but also appreciated the inclusion of an Industrial Strategy and support for programs like Made Smarter, which could foster growth in the manufacturing sector. As Reeves’s budget measures take effect, the long-term implications for investment, employment, and economic stability remain areas of focused observation.
The government’s decision to impose a £40 billion tax increase is a calculated effort to stabilize public finances, albeit with potential trade-offs for growth and investment.
