Rachel Reeves has been urged not to put up taxes for business again in a desperate pre-Budget plea fuelled by alarm at the UK’s slide down global competitiveness rankings.
The British Chambers of Commerce (BCC) and Confederation of British Industry (CBI) instead urged the Chancellor to help UK plc recover by getting behind its firms.
It came as further turmoil on bond markets created a fresh headache for Ms Reeves and the Chancellor was warned higher taxes risked creating a ‘doom loop’ of lower growth.
UK companies are already struggling to cope after the last Budget, which saw a sharp hike in employer national insurance.
That has made it more expensive to hire workers, resulting in fewer jobs and costs being passed on in the form of higher prices.
And it has added to the crippling burden of tax and regulation which critics say is holding firms back from being more competitive in the world.
No laughing matter: Chancellor Rachel Reeves shares joke at the Labour Party conference in Liverpool with Business Secretary Peter Kyle (left) and Keir Starmer
A new report from the BCC highlights that Britain has slid down a global league table from ninth in 1997 to 29th today, according to findings published separately earlier this year – putting it behind Lithuania, Iceland and Oman.
It urged the Chancellor to reverse the trend and ‘sharpen the UK’s competitive edge to stay ahead of the pack in an increasingly dog eat dog world’.
BCC director general Shevaun Haviland said: ‘If the UK economy is not competitive then it cannot grow. Our slide down the rankings has been driven by increasing volatility on tax and regulation which has led to an inexorable rise in the cost of doing business.
‘There is also growing speculation about what’s coming in the Autumn Budget, which is still weeks away. This is eroding business confidence further as the government’s messaging of “tough choices” adds to the fear.
‘But the Budget can be the decisive moment we need to back British business and put the economy on the front foot.
‘If we want the UK to be more productive and to grow our economy, then we must take action to become more competitive internationally.’
The report called on the Chancellor to commit to no further tax hikes that add to labour costs.
It also demanded an end to the windfall tax on North Sea oil and gas – in order to address high energy costs facing business – as well as coming up with a clear strategy for the industry’s future.
In addition, the BCC wants the government to prioritise infrastructure investment including new runways at Heathrow and Gatwick and the expansion of Luton airport.
A separate report from the CBI adds to gloomy recent figures about the UK economy, revealing that the financial services sector is shrinking at the fastest pace since the height of the pandemic in 2020.
CBI chief economist Louise Hellem said that there were ‘shoots of potential economic momentum’ heading into the end of the year.
She added: ‘Harnessing this momentum will depend on the decisions the government makes during the forthcoming Budget, with the CBI’s message clear: there can be no further tax rises on business.
‘Instead, the government must focus on promoting the strengths of our world leading financial services sector.’
It came as another rocky day on global bond markets – as investors reacted to a US government shutdown – provided an added reminder of Britain’s parlous financial situation.
In the UK, two-year borrowing costs or yields briefly hit the highest level since June.
It highlighted the pressure Ms Reeves will face as bond markets closely scrutinise her Budget next month.
Britain already pays higher rates than any other advanced economy to borrow money on the financial markets by selling bonds, known as gilts.
The Chancellor will be wary of upsetting investors by failing to convince them of her plan to balance the books – since if they react negatively borrowing costs could be pushed even higher.
But many fear that if she does so by raising taxes rather than cutting spending, she will dampen growth – ultimately reducing tax revenues and only adding to pressure on the public finances.
Oliver Faizallah, head of fixed income research at wealth manager Charles Stanley, said: ‘Markets are concerned about the UK’s fiscal position, and rightfully so.
‘Yields will likely remain elevated until we get a clear plan at the autumn Budget, though given the UK government’s promises not to increase austerity and to keep its fiscal maths in order, the autumn Budget will inevitably bring higher taxes.
‘This isn’t a quick fix though. Higher taxes may create a fiscal doom loop, where tax increases hurt demand and growth, further lowering tax receipts.’
