Business chiefs tell Reeves to make ‘unpopular’ tax decision
Business chiefs have urged Rachel Reeves to take a bolder approach at the Budget and consider “unpopular” decisions to break Labour Party manifesto commitments.
Members across the Confederation of British Industry (CBI), one of the UK’s largest industry groups, have urged the Chancellor to focus on boosting investment and productivity for the long-haul.
Business leaders said the Chancellor should focus on giving firms greater confidence by creating a fiscal headroom larger than £9.9bn.
Business chiefs believe a larger headroom would prevent “unwelcome tax changes” being made in the spring, potentially continuing the UK’s doom loop.
While the CBI steered clear of the Institute of Director’s clear proposal for Reeves to raise income tax, it strongly hinted that hiking income taxes – thereby breaking a key Labour Party manifesto pledge – would be the “most sensible” option.
“It’s up for them to decide,” CBI chief economist Lousie Hellem told City PM.
“The business tax burden is at its highest for 25 years. The top line for us is don’t increase the tax burden more.”
Hellem added that businesses were “conscious” there had been a Spending Review that baked in departmental budgets.
End ‘yearly tinkering’ with taxes
The CBI’s chief executive Rain Newton-Smith said the Chancellor should end the cycle of “yearly tinkering” and consider breaking Labour manifesto pledges not to raise the three biggest revenue-raisers for the government.
“Sticking rigidly to manifesto commitments may be politically laudable, but it’s only economically viable if material conditions remain unchanged. The fact is they are not.
“Tax rises and spending cuts are unpopular, but the reality is that the Chancellor faces little choice. We need to make sure that these measures are fair, broad-based and have a laser-like focus on raising investment, growth and productivity for the long term.”
Reeves handed pro-growth options
In a sweep of proposals handed to the government, the CBI has said the government should fast-track critical infrastructure through primary legislation, including by hiring 600 planners to deliver a “liberalised planning system”.
It also re-emphasised previous proposals for the government to tweak the Employment Rights Bill to prevent a further slowdown in hiring and to scrap plans to introduce an international student income levy, which it said would damage ambitions set out in Labour’s industrial strategy.
The CBI also made a set of tax cut proposals it believes would have the highest economic returns for job and investment growth in the UK.
One proposal would see stamp duty on shares be scrapped, a tax that has long been the bane of City investors and firms.
Such a tax cut, alongside the further expansion of research and development (R&D) credits to include capital spending, could cost nearly £4bn.
An extension of full expensing to leased assets, allowing businesses to buy machinery at a lower cost, would initially add a further £3.8bn to the fiscal hole.
It also called on the government to offer a discount scheme that enables electricity to be used in industrial processes as part of a decarbonisation drive, though researchers said the cost was unclear.
The CBI is among a number of groups that have held regular meetings with Treasury officials ahead of the Budget to devise plans that boost growth and curb inflation.
Most proposals are unlikely to be adopted by Reeves but Hellem said policymakers were “cognizant” of alarm bells rung by businesses.
Entrepreneurs brace for higher taxes
A separate pre-Budget survey by the Entrepreneurs Network uncovered the growing fears among entrepreneurs of a higher tax burden that could push business owners out of the country.
Its survey found that 88 per cent of entrepreneurs were preparing to be hit with higher taxes at the Budget.
Nearly three quarters (71 per cent) of respondents in the survey of 250 entrepreneuers said they knew of at least one founder who was planning to leave the UK because of the tax regime.
Despite reports suggesting that Reeves could offer some tax breaks for entrepreneurs, just one in a hundred believed the Budget would be good for founders.
Eamonn Ives, research director at The Entrepreneurs Network said: “Nobody likes paying tax, but most entrepreneurs have never regarded it as an enormous bugbear – until now.
“Our polling shows that years of repeated tax hikes are now taking their toll. The UK can’t hope to outcompete tax havens, but we can be smarter about how we raise money to fund public services.”