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The Independent
9 hours ago
- Business
- The Independent
What can Rachel Reeves do to pay for Starmer's welfare U-turn?
Taken together, the cost to the public finances of recent reversals on welfare payments is estimated to be around £4.5bn. Restoration of the pensioners ' winter fuel payment for most recipients will cost some £1.2bn, while keeping the present arrangements on personal independence payment and the health element of universal credit will mean the chancellor loses some £2.1bn and £1.1bn, respectively. While these aren't catastrophic changes in a total public spending universe of about £1.3 trillion, Rachel Reeves allowed herself very little fiscal headroom. So she'll be looking to make up for the cost of the recent U-turns. Given that she's only just delivered a spending review that set out plans for the next three years, including tighter budgets for many government departments, she is reportedly more willing to consider tax hikes. The uncertain outlook for economic growth will make her even more cautious. Despite constraints, she has some options… What won't Rachel Reeves do? All the signs are that she won't make any further changes that could be interpreted as a direct contravention of the 2024 general election manifesto promise: 'We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.' The 2 per cent hike in employers' national insurance at the last Budget hit smaller businesses quite hard, and will affect wage rises, so it was very close to the letter of that pledge. She's not going to go there again. But bear in mind that the freeze on tax thresholds will remain in place until 2028 – a hidden rise in income tax for many. Is anything else ruled out? Lots: there's a whole herd of sacred cattle that she can't touch, politically. These include the rate of corporation tax, about which the manifesto says: ' Labour will cap corporation tax at the current level of 25 per cent, the lowest in the G7, for the entire parliament'. Slapping VAT on zero-rated items is effectively ruled out, as are increases in most other business taxes. There's zero chance of any further capital gains tax being applied to homeowners, which would make eminent economic sense but would be electoral suicide. Reeves may also have run out of scope for squeezing rich non-doms – for fear of ending up with lower tax revenues due to flight and increased avoidance. Council tax procedures are being tweaked, but there is little chance of any thorough reform of the eccentric system of local government finance; memories of the imposition of the poll tax remain raw, almost four decades on. The big picture here is that the UK tax base is artificially narrow, for historical and political reasons. For example, personal taxation in the UK is still low by international standards, even when the overall tax burden is near a post-Second World War high, but UK business rates are correspondingly high and uncompetitive. Wealth is taxed marginally and haphazardly. This is bad for long-term growth, and every year means taxes are loaded too high onto a too-narrow base. What is an easy hit? Capital gains tax, as usual, but again Reeves will need to be careful not to go too far and risk discouraging savings and encouraging avoidance. The same goes for changing the rules on personal pensions: higher-rate tax relief on contributions and reducing the tax-free allowance for a cash withdrawal from a pension pot. Given the need for orderly retirement planning, radical changes would be undesirable and unpopular. But there could be adjustments. Will petrol go up? It certainly should. Unbelievably, fuel duty has been frozen since 2011, at 57.95p per litre, with an additional 5p per litre 'temporary' cut in 2022 to ease the cost of living crisis. Technically, this is due to be ended next year, with the duty now scheduled to rise. For Reeves to raise more than planned she'd have to up it by, say, 10p per litre. It would raise enough to pay for the U-turns, but would attract the scorn of the motorist and 'white van man'. The wider problem here is that the switch to electric vehicles is already depressing fuel duties. Sin taxes? Alcohol and tobacco are mostly maxed out, but there's still some scope with online gambling and duties on sugary and fatty foods. The sugary drinks levy worked very well on health grounds alone, but any 'tax on food' has always been anathema to the British public (albeit VAT is levied on confectionery). Reeves will also be mindful of the great 'pasty tax' fiasco of 2012 when George Osborne tried to make some rational changes to the VAT regime, including on 'ambient' takeaway food. His 'omnishambles' Budget soon collapsed, and Greggs customers have steadily got flabbier in the succeeding years. Rachel will be steering clear. What does the Labour left want? A wealth tax: a 2 per cent levy for those with assets in excess of £10m. No chance. What about a tax on interest the Bank of England pays the banks on deposits? That does crop up as a suggestion. It's very abstruse stuff, but this basically boils down to another tax on the commercial banks. It isn't paid by 'rich bankers' as such (though it might dent some bonuses) but by the banks themselves. Other things being equal, it would mean lower returns for savers, less availability of business finance and mortgages, and a less resilient banking system. The Bank of England says it could make managing monetary policy more difficult. But it could reduce the cost of borrowing to the Treasury by maybe £10bn a year. The chancellor may find the temptation irresistible.
Times
a day ago
- Business
- Times
Keir Starmer tells business leaders: ‘We've asked a lot of you'
Stepping on stage at the QEII Centre in Westminster on Thursday, the prime minister was full of thanks and acknowledgement of the effect the government's cost increases have had on businesses. Addressing the annual British Chambers of Commerce conference after an earlier breakfast meeting with bosses of more than a dozen companies, including Heathrow, Spire Healthcare and NatWest, Sir Keir Starmer signalled an attempt to rebuild strained relations. 'I want to begin by thanking you all because look, I fully acknowledge here that this year, as we've had to fix the foundations of our country, deal with the unprecedented mess that we inherited, we've asked a lot of you. I understand that,' he said. • 'Freeze taxes' says business lobby after national insurance hit After being wooed in the run-up to July's election victory, businesses have since hit out at the 'size and scale' of Labour's rise in employers' national insurance contributions, announced in October's budget and introduced in April. A new survey by the BCC, one of Britain's big five business lobby groups, released before its conference of mostly small and medium-sized businesses, found that a third said they have either made staff redundant or are planning to as a 'direct result' of the increase. Shevaun Haviland, the BCC's director general, in her conference speech, pressed the government to commit itself to freezing business taxes. In Starmer's charm offensive to the hundreds of delegates sitting before him in the vast conference room he gave no such commitment. But having unveiled the spending review for the parliament this month, as well as the industrial, infrastructure and, on Thursday, trade strategies, the prime minister said the government had shown a 'clear shift' to the 'next phase' of 'investing in the future of our country'. He added: 'And that means that we have to back you to the hilt. Because your members are the engines of growth in every community across the United Kingdom.' Monday's industrial strategy is underpinned by slashing the internationally uncompetitive costs of the economy's most intensive energy users and finally tackling the country's chronic skills shortage. The trade strategy includes a focus on pursuing smaller, faster trade deals with the likes of Brazil, Thailand and Kenya, rather than bigger free-trade agreements; closer ties with 'like-minded' nations such as Japan and Singapore; a £20 billion increase in the capacity of UK Export Finance, the government's credit agency for exporters, to £80 billion; and a consultation on anti-dumping measures for steel. One senior business leader, speaking privately on the sidelines of the conference after Starmer's speech, said the prime minister 'really is listening. So I think that is all positive.' But they added, talking of the broader government: 'They don't quite recognise the impact of the taxes and national insurance impact. It is significant. I mean you can't just absorb those. You have to do something about it. It is impacting jobs.' They said: 'Everybody in the room I talk to is making redundancies … so they're [ministers] going to have to do quite a lot of work on the productivity side of the balance sheet to offset what they did.' On stage, in a conversation with Haviland, Thomas Woldbye, the chief executive of Heathrow, welcomed the chancellor's green light this year for a third runway at the airport, a big infrastructure project that could boost Britain's productivity. Woldbye said Heathrow was 'central' in 'facilitating and delivering' the government's trade, industrial and infrastructure strategies. Heathrow is submitting its formal proposal to the government this summer and ministers are targeting planning permission this parliament. Woldbye said the chancellor's deadline was 'very, very ambitious' and required work on planning, as well as modernising the UK's airspace. Another significant concern of business is the government's contentious Employment Rights Bill. Starmer told the conference: 'I get the concerns,' but declined to signal further concessions as officials work with business on the reforms. The workers' rights changes will introduce day-one rights, better access to flexible working, and hand greater powers to trade unions. The prime minister said: 'Many people have recognised that a secure, protected workforce is good for business; drives up productivity.' Jonathan Reynolds, the business secretary, who also attended the conference and the earlier breakfast with bosses, told reporters on the sidelines that he was 'absolutely certain' the government could address the 'two principal concerns' of business — probation periods and access to zero-hour contracts — 'not through any change of policy, but through our existing approach'. • Workers' rights bill will stymie growth, not encourage it The senior business leader, who was speaking privately, said to capitalise on the productivity benefits of artificial intelligence, businesses needed to restructure the workforce and operations, yet the employment rights reforms 'as far as I can see, freezes everything … you're going to get into a very complex process'. Closing the conference, Kemi Badenoch, the leader of the opposition and former Conservative business secretary, reiterated that the Tories had lost the trust of business before last July's general election, but citing inflation, growth and unemployment, said Labour had since delivered 'change for the worse and it didn't have to happen'. Taking aim at the employment rights reforms — a 'huge problem' — and business taxes, Badenoch said: 'The rise in national insurance is killing jobs. It is making it impossible for businesses to grow.' Seeking to 'win back trust', she told delegates: 'We have to unleash the animal spirits of business.'
The Independent
2 days ago
- Business
- The Independent
Starmer admits employer national insurance tax hikes piled pressure on British business
Sir Keir Starmer has admitted his Budget tax hikes piled massive pressure on British businesses. The prime minister said his government 'asked a lot' of firms in the UK after coming to power in last year's general election, as Rachel Reeves imposed £25bn of tax rises on companies through her employer national insurance increase. But, addressing business chiefs at the British Chambers of Commerce (BCC) conference, he said, in doing so, Labour had 'wiped the slate clean and stabilised the economy'. 'We can now go on to the next phase of government, building on that foundation… and that means we have to back you to the hilt,' the prime minister vowed. The BCC speech was Sir Keir's bid to win back the trust of business chiefs after months of deteriorating relations. Before Labour came to power, Rachel Reeves and Sir Keir launched a notorious charm offensive in the City, frequently entertaining executives over pastries and smoked salmon sandwiches. Many former Conservative donors flocked to support Labour as it vowed to run the 'most pro-business government the UK has ever seen'. But they were quickly let down by the party as the chancellor 's October Budget hit employers with the £25bn hike in national insurance contributions. Firms have also felt the impact of Labour's decision to raise the national minimum wage and are bracing for Labour's employment rights bill, which is coming down the line. That will include a right to guaranteed hours, cracking down on zero-hour contracts without the offer of work, and introducing new restrictions on 'fire and rehire' processes when employees are let go and then re-employed on new contracts. Critics have claimed the bill will drive up costs for businesses and lead to bosses hiring fewer staff. Acknowledging the impact of his policies, Sir Keir said: 'This year, as we have had to fix the foundations of our country and deal with the unprecedented mess that we inherited, we asked a lot of you. 'I understand that, and I want to acknowledge that it has made a huge difference. Because of it, the money's gone into the NHS and waiting lists are coming down. 'We have put investment into the skills of our young people, the new homes, new roads, new infrastructure that we're building. 'They are all vital for the long-term growth of our country, but none of that would have been possible without your contribution. And I say thank you.' BCC director general Shevaun Haviland used her speech to warn the prime minister that there must be 'no further tax increases on business in the autumn Budget'. She said: 'Business leaders are resilient, but they are also flexible. Some of our well-thought-out business plans sometimes no longer meet our needs. When the facts change, so do we. "And the government needs to take the same approach. If the UK economy is subject to any further economic shock, such as a sustained spike in oil prices, then we need fiscal rules that are responsive and protect business investment." Sir Keir went on to cite his trade deals with India, the US and the European Union as evidence that the government is backing businesses 'to the hilt', adding that he has UK companies 'in his mind's eye' when he is negotiating with world leaders. But, during the Q&A after his speech, Sir Keir was asked if he 'fully gets the deep concerns when it comes to the employment rights bill'. The PM said: 'Yes, I get the concerns… one good thing about business is that they don't hold back when they talk to me, and they are quite right too, because those conversations matter.' He said some firms have raised concerns about the bill, which will offer workers greater employment protections, but said it will be 'good for business and drive up productivity'.
Times
2 days ago
- Business
- Times
‘Freeze taxes' says business lobby after national insurance hit
The government has been warned that taxing business further may endanger its growth mission after new research showed firms are cutting staff in the wake of the recent £25 billion national insurance increase. In a speech at the British Chambers of Commerce's annual conference in London on Thursday, Shevaun Haviland, director general of the business lobby group, will press ministers to ease the cost burden on business. She is expected to say that business was unprepared for the 'size and scale' of the rise in employers' national insurance contributions, which was announced in October's budget and introduced in April. Rachel Reeves met Shevaun Haviland at the Treasury in January and the government will seek to rebuild relations at a the British Chambers of Commerce's Global Annual Conference this week KIRSTY O'CONNOR/TREASURY/ CROWN COPYRIGHT 'As a result, our business confidence measures have fallen to their lowest levels since 2022. For the government to achieve its growth mission, people need to stay in work and businesses need to invest. As always, businesses soak it up and move forward, but they feel like they are wading through treacle,' she is expected to say.
The Independent
5 days ago
- Business
- The Independent
Surge in firms using loans to pay tax bills amid April increases
The number of businesses using loans in order to pay for tax bills has soared by more than a third so far this year in the face of April cost increases, a major financing firm has warned. Billions of pounds of tax and VAT payments are set to be covered by credit and financing arrangements this year, according to specialist lender Premium Credit. Bosses at the finance provider said it comes as small businesses across the UK face increased 'strain' on their finances due to the recent increase in employers' national insurance contributions. In April, firms were hit by higher NI payments alongside the increases in the national minimum wage and tax increases, such as higher business rates payments and new packaging taxes. Premium Credit said it witnessed a 37% jump in customers using its tax and VAT financing service in the first quarter of 2025 against the same period last year as firms prepared for tax hikes. The number of customers using financing for tax and VAT has jumped by 109% over the past two years, the company added. It added that the average loan used to help pay VAT tax bills was worth around £108,000 in 2024, with this around £70,000 for non-VAT bills. Jennie Hill, chief commercial officer at Premium Credit, said: 'Around £3 billion to £5 billion of tax and VAT liabilities are financed each year and recent increases to employers' national insurance are adding to the strain on SME (small and medium-sized enterprise) cashflow.' Meanwhile, research commissioned by the business surveying small business owners found that 20% of small firms said they worry that paying tax bills will be more difficult this year. Around 28% also cautioned that they think they will struggle to pay a tax bill in the next five years.
