The recent UK budget proposes a £40bn tax increase that could slow economic growth as per the Office for Budget Responsibility (OBR).
- A significant portion of this tax hike comes from an increase in National Insurance contributions for employers, causing concern among business leaders.
- Capital Gains Tax rates are also rising, potentially affecting the tech and AI sectors reliant on high-risk capital.
- Small businesses may face challenges due to these fiscal changes, though some will benefit from business rates relief.
- Despite funding boosts for sectors like healthcare, concerns remain regarding the overall impact on the UK’s economic ambitions.
The recent UK budget has introduced a £40bn tax increase, as highlighted by the OBR, which anticipates a potential slowdown in economic growth. Business leaders express concerns regarding the financial pressures stemming from a 1.2 percentage point rise in National Insurance contributions, elevating the rate to 15% from April. This measure intends to generate £25bn, yet poses a financial strain on employers, possibly deterring hiring and wage growth. Rain Newton-Smith, CBI Chief Executive, noted, “This is a tough Budget for business,” advocating for government collaboration to unlock private sector investments, especially in infrastructure and green energy.
The budget extends to changes in Capital Gains Tax, with the lower rate climbing from 10% to 18% and the higher rate from 20% to 24%. For Britain’s tech and AI sectors, which heavily rely on high-risk investment, these alterations pose challenges. Muj Choudhury, CEO of RocketPhone, stressed that increasing CGT might hinder UK’s aspirations to become a global AI hub. He stated, “Increasing CGT creates barriers for tech entrepreneurs, who are already hesitant given rising taxes and costs.”
Small businesses particularly face difficulties due to the heightened NICs. Todd Davison from Purbeck Personal Guarantee Insurance cautioned that these changes could gravely impact small enterprises, especially those recovering post-pandemic. This may lead to increased operational costs or force closures, notably in hospitality, retail, and leisure sectors. However, there exists a silver lining as the Employment Allowance increase offers relief by reducing the NIC burden for companies with smaller payrolls.
Furthermore, the budget maintains the freeze on inheritance tax thresholds until 2030, which has provoked mixed reactions. Rachel Reeves defended the controversial tax hikes, arguing necessity to address fiscal deficits and fund compensations for historical injustices. The budget seeks to bolster public finances while also allocating £22.6bn to the NHS, yet business leaders express apprehension regarding the implications on the UK’s growth prospects.
Stephen Phipson, CEO of Make UK, remarked on the challenges posed by the budget, especially for SMEs. Nevertheless, he acknowledged potential growth avenues facilitated by the Industrial Strategy and supported programs like Made Smarter aimed at enhancing the manufacturing sector. As the budgetary measures take effect, their long-term impact on investment and economic stability remains unpredictable, though the government’s resolve to balance financial accounts is evident.
The £40bn tax hike underscores the UK government’s commitment to financial stability, yet sparks debate on its potential economic implications.
