Confederation of British Industry warns tax rise will hit investment and pay

By David Milliken

LONDON (Reuters) – British employers have been caught off guard by a 25 billion pound ($31 billion) tax rise at last month’s budget and plan to cut training, investment and jobs in response, the Confederation of British Industry said before its annual conference on Monday.

The CBI said a survey of its members showed 61% viewed Britain as a less attractive place to invest and nearly half intended to reduce staffing levels or scale back pay rises after a large increase in employers’ social security payments.

“The rise in National Insurance and the stark lowering of the threshold, caught us all off guard. Set alongside the expansion and rise of the National Living Wage … and the potential cost of the Employment Rights Bill changes … they put a heavy burden on business,” CBI Chief Executive Rain Newton-Smith said.

The CBI’s complaint comes amid broader signs of an economic slowdown in Britain in the run-up to and after the budget.

Finance minister Rachel Reeves raised taxes by 40 billion pounds overall in the Labour Party’s first budget in 14 years, to fund higher spending on public services and fill what she said was a 22 billion pound hole left by the last government.

“Tax rises like this must never again be simply done to business,” Newton-Smith said.

After the budget, Reeves told lawmakers she did not expect to need to raise further to pay for more spending by government departments. But Britain’s budget watchdog judged Reeves had left little room to absorb any increase in government borrowing costs without either raising taxes or missing her goal to reduce debt.

The big rises in national insurance and the minimum wage particularly hurts CBI members such as big retailers and hospitality chains who employ many low-paid part-time staff.

Newton-Smith said greater economic stability under Labour was not enough on its own to boost growth, as reduced profits directly hit businesses’ ability and willingness to invest.

“Profit’s not a bad thing.  It’s not a dirty word,” she said.

Britain has low investment by international standards and many economists see this as a key cause of its weaker productivity compared to the United States, Germany and France.

($1 = 0.7996 pounds)