Businesses warn of £400m in extra costs after Reeves’s Budget tax raid

Businesses across the UK are sounding the alarm over rising costs after Rachel Reeves raised taxes by some £40bn at the Budget last week.

The Chancellor announced that employer’s national insurance contributions (NIC) will increase by 1.2 per cent to 15 per cent, and the threshold at which businesses start paying the levy will be lowered. The move is expected to raise around £25.7bn for the Treasury.

While Reeves’ has argued she kept her promise to avoid taxing “working people”, businesses have warned the move will dramatically increase costs and they will be forced to pass these on to the public.

Sainsbury’s chief executive Simon Roberts said this week that these new labour costs will hit shoppers with higher prices, with the supermarket predicting an added £140m to its cost base.

The grocer has over 148,000 employees, and Roberts warned that “the impact on national insurance was unexpected and is coming fast.”

This was echoed at its rival M&S, with chief executive Stuart Machin stating that that the budget’s “long-term impact on the company’s customers and suppliers was uncertain”.

Machin expects payroll expenses to rise by £60m for its 65,000 UK staff, as a result of change in the national insurance levy and rise in the living wage.

Asda was the latest in joining the Budget backlash, warning that the chain will be hit with £100m in extra costs. It reported a 2.5 per cent decline in third quarter revenues, as sales fell 4.8 per cent year on year.

Chairman Lord Stuart Rose described the hikes as a “big burden for business to carry”. He said the company is “looking at the impact”.

The pub sector’s lobby group, the British Beer and Pub Association, warned of a ‘tsunami’ of cost increases and a £310m bill following the budget. Wetherspoon boss Tim Martin said he expects costs to increase by around £60m, but added the group “will, as always, make every attempt to stay as competitive as possible.”

Fuller’s, the brewing and pubs company, also warned that the Budget backlash would trigger an avalanche of costs, leaving the company no choice but to increase prices.

This was also repeated by Greene King, who acknowledged that this layering of costs will leave pubs with an array of difficult decisions around prices and hiring.

Budget set to push tax burden to record levels

Despite claiming she had no plans to be a “tax raising Chancellor” last year, Reeves unveiled the second biggest package of tax hikes on record and will push the tax burden to record levels. The majorities of the charges have been targeted at businesses and the wealthy.

Alongside an additional £25bn bill from changes to national insurance payments, businesses are facing a 6.7 per cent rise in the national minimum wage to £12.21 an hour.

It’s not just retail, these added costs spread across all sectors with telecoms giant BT’s boss revealing its employment bill will expand by £100m. Chief executive Allison Kirkby said the group would go ‘harder and faster’ with cost-cutting efforts ahead of the levy change.

BT is already in the midst of a cost-cutting programme as its strategy is to reduce headcount from 130,000 to between 75,000 to 90,000 by 2030.

Outsourcing giant Serco warned its shareholders on Friday the tax changes will drive up costs by as much as £20m across the group. The FTSE 250 company has over 400 sites and employs 30,000 people in the UK alone.

The business stated it is now “actively exploring ways to offset these costs” before the changes take effect from April 2025.

On the back hand of that, Budget tax rises will ‘dampen hiring’, with many business groups criticising the levy as a tax on jobs for putting up costs and slowing the pace of hiring.

These predictions come as right-wing think tank Institute of Economic Affairs (IEA) warned that workers could easily see their pay packet fall if firms cut wages in response to the tax hike.

Tom Clougherty, executive director at the IEA stated: “The incidence of a tax doesn’t always fall on the person who pays it. When we tax businesses, it is often workers who end up bearing the burden in the form of lower wages.”