Price hikes and job cuts are inevitable following Labour’s Budget, business leaders have warned Rachel Reeves as they accused her of failing to grow the economy.
The bosses of some of the UK’s biggest firms have said the government failed to engage with them ahead of the Budget, while a survey of business chiefs found that two thirds believe it will make Britain a less attractive country to investors.
Despite a manifesto pledge not to increase taxes for working people – including national insurance contributions (NIC), income tax and VAT – the chancellor increased employers’ NICs from 13.8 per cent to 15 per cent at the Budget.
She also reduced the threshold at which employers start paying the tax, slashing it from £9,100 per year to £5,000.
And firms previously spoken to by The Independent have urged the government to change course, warning that they will be forced to “tighten their belts” as a result of the policy and claiming that some are facing a sevenfold rise in their bills as a result.
John Longworth, chair of the Independent Business Network, described the Budget as “anti-growth”, while Dr Roger Barker, director of policy at the Institute of Directors, said the increase in employer NICs takes “no account of whether a business is profitable or not”.
Meanwhile the British Retail Consortium, which represents supermarkets, including Asda and Tesco, and hundreds of other well-known retailers, said in a draft letter to Ms Reeves, seen by The Times, that its members would not be able to absorb the costs.
“The sheer scale of new costs in the autumn budget and the speed with which they occur, together with costs from a raft of other regulation, create a cumulative burden that will make job losses inevitable, and higher prices a certainty,” it said.
And Confederation of British Industry chief executive Rain Newton-Smith added: “There’s a lot of disquiet in the business community on whether this government is solidly focused on that growth mission. If you look at the next three to five years you see that business investment is weaker because of decisions made in the budget.
“Chief executives look at some of the measures in the budget and say this is going to make it harder to make the decisions to invest in the UK. Business leaders do credit the focus on long-term infrastructure … but what I don’t see is that real plan for growth over the next three to five years. I think that has really taken the business community by surprise.”
The backlash comes as Ms Reeves prepares to unveil pension “megafunds” to help unlock billions of pounds of investment in UK businesses and infrastructure.
The funds will consolidate the pension funds of Britain’s 6.7m public sector workers into a handful of pots run by professional fund managers, freeing them up to invest in infrastructure and support economic growth.
Ms Reeves’ national insurance rise comes alongside a 6.7 per cent hike in the minimum wage, leaving many firms facing a double whammy.
Supermarkets will be among those facing the biggest hit due to the rise, with Morgan Stanley research showing Tesco is facing a £1bn hit.
After Sir Keir Starmer and Ms Reeves’ much-hyped charm offensive with business chiefs, one adviser to a FTSE100 firm told The Times: “Business is feeling very sore. Two years of supine breakfasts and the first chance they get they give business a slap.”
Andrew Higginson, the chairman of JD Sports, told BBC Radio 4’s Today programme. “I’m guaranteeing you today that if these go through as they are without any sort of feathering, we are going to see significant inflation in prices,” he said. “The cumulative effect of all these changes is too much for industry to bear in the sense of them being able to get on and invest and grow.”
Meanwhile pub group Fuller’s has revealed a £3 million hit from the Budget move to increase employers’ national insurance contributions and joined the growing list of firms warning over price hikes to offset the impact.
Chiswick-based Fuller, Smith & Turner – which has 5,500 staff – said it would need to raise prices for customers across its hotels and pubs as it faces a significant cost increase.
The group said that together with the planned increase in the minimum wage, which was also announced in the Budget, it will be facing an extra £8 million bill next year.
Simon Emeny, chief executive of Fuller’s, said: “We won’t be able to afford to just take the £8 million hit to the bottom line, so there will be price increases and it will be inflationary.”
The pub chain currently operates at 380 locations across the UK, most located in southern regions. This puts it below larger chains like Wetherspoons and Greene King.
His comments came after the UKHospitality trade body warned that the sector would face £3.4bn in extra costs from next year when several of Labour’s economic changes come into play.
Wetherspoons boss Sir Tim Martin also warned prices at the pub chain will be hiked next year. He said: “Cost inflation, which had jumped to elevated levels in 2022, slowly abated in the following two years, but has now jumped substantially again following the Budget,” he recently warned.
“All hospitality businesses, we believe, plan to increase prices, as a result.” Sir Tim said his own running costs are rising by £60m in the next year.
The Treasury said Labour inherited crumbling public services and Ms Reeves’ tax hikes protect workers’ payslips while pumping money into the NHS and other public services.