Reeves warned fresh tax raid would ‘undermine the economy'

Telegraph

2 days ago

Rachel Reeves has been warned that a fresh tax raid to fund benefit U-turns risks 'undermining the UK economy', as business confidence crumbles.
The Institute of Directors' (IoD) closely watched survey of bosses confidence tumbled to -53 in June from -35 in May.
The lobby group blamed the impact of the Chancellor's National Insurance tax raid, which took effect in April, and gloom from Donald Trump's trade war.
Against this weak backdrop, Anna Leach, the IoD's chief economist, warned that a further tax raid in the autumn risked being self-defeating as it could cripple growth and lead to even lower taxes for the Treasury.
She said: 'If you go after businesses again, there is a very real danger of that undermining the UK economy and leaving it in a less stable position – and undermining the very revenues that you're trying to drive up.'
Mel Stride, the shadow chancellor, said the IoD's numbers were 'a stark reminder that Labour's broken promises are hitting business confidence hard'.
He said: 'Instead of fostering growth, the Chancellor's costly jobs tax and reckless regulatory overreach are driving uncertainty and squeezing investment.'
Businesses targeted
The IoD's warning comes amid mounting speculation that a succession of U-turns by Sir Keir Starmer will leave Ms Reeves with little choice but to raise taxes by billions of pounds later this year.
Climbdowns on sickness and disability benefits leaves the Chancellor with a shortfall of around £2.5bn, on top of a £1.25bn hit from backtracking on winter fuel payment cuts.
Alongside other pressures, Ms Reeves faces a shortfall of around £20bn against her fiscal rules in autumn, warned economist James Smith, of Dutch bank ING.
'The Government has probably gone as far as it can politically on the spending side, which means tax rises are more likely,' he said.
'It's going to be hard to avoid looking at the major taxes. I can imagine employer National Insurance going up again. But a one percentage point rise raises £6bn, so the Treasury is probably going to have to go further than that.'
Labour's manifesto pledges include not raising the key taxes working people pay, including income tax, National Insurance and VAT. As a result, businesses are likely to be targeted again in the autumn.
Ms Leach warned that bosses were nearing their limit after being hit with big increases to costs and changes to inheritance tax, just as they face an increase in global instability.
She said: 'The Government has been much more radical in taxing business than it has been in removing blockers to growth. The risks from putting a higher burden of taxes on the businesses that I'm talking to are pretty stark. They are going to leave, that's what they say, or they're going to wrap up their businesses. There is a limit, inevitably.
'We need to see faster progress and greater ambition on de-regulation – particularly planning reform – and a reconsideration of the tax landscape for business if we're to change the UK's economic fortunes.'
A Treasury spokesman said: 'As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy, which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms.
'Since last July we've attracted over £120bn into our economy and created 384,000 new jobs, turbocharging economic growth and putting more money into the pockets of working people.'
The IoD's survey found 30pc of bosses planned to cut their jobs, while only 19pc expected to hire more people.
More employers have said they are shrinking employee numbers than growing them every month except one since Ms Reeves's maiden Budget in October, according to the survey.