Rachel Reeves has been warned that the economy faces ‘death by a thousand taxes’ as the City and middle Britain shudder over the prospect of Budget pain.
The Confederation and British Industry (CBI) said firms already clobbered by Labour could not take any more.
And the boss of Marks & Spencer said fear of tax hikes meant its customers were ‘planning for the worst’.
It came as a leading economist said ‘a pretty nasty set of tax rises’ is coming.
The comments show how the Chancellor’s ominous speech this week signalling painful tax increases has sent shockwaves through boardrooms and households.
They reveal that even though Ms Reeves insists ‘we will all have to contribute’ to patching up the public finances, the likely targets of her tax grab fear they cannot afford to do so.
Rachel Reeves raised fears of tax hikes in a pre-Budget speech
The CBI argued that rather than raiding corporate Britain and damaging the economy, Ms Reeves must confront Left-wing MPs by taking an axe to welfare spending.
It also suggested an income tax raid would be better than more taxes on business.
But millions of ordinary households would disagree.
M&S chief executive Stuart Machin yesterday said the Chancellor’s warning of pain on Tuesday ‘may have calmed the bond markets but it hasn’t really calmed our customers’.
He added: ‘Customers are worried about rising costs and they got more worried after yesterday.’
Ms Reeves faces having to raise up to £60 billion in the Budget through tax hikes and spending cuts. That is how much may be needed to fix a £30 billion financial ‘black hole’ and then build £30 billion in ‘headroom’ to guard against future crises.
Yesterday, Paul Johnson, former director of the Institute for Fiscal Studies, said: ‘I’m assuming we’re going to get a pretty nasty set of tax rises in three weeks.’
Mr Johnson also told the annual conference of the Institute of Chartered Accountants of Scotland that: ‘You need clarity on what the model for growth is and we are so far away from achieving that.’
The CBI said that with business taxes at a 25-year high, firms could not take any more – especially after being punished with a £25 billion employer national insurance raid and sharp hike in the minimum wage in the Chancellor’s last Budget.
On top that the government’s workers’ rights bill is piling further pressure on companies.
In a Budget submission today, the CBI said: ‘Hard choices must be made. “Death by a thousand taxes” is not a credible way to deliver a thriving, prosperous economy.’
The group said Ms Reeves must ‘challenge party orthodoxy’ including ‘unpopular moves’ to revisit welfare reform and curb public spending. Income tax and the triple lock guarantee on state pension increases could also be looked at, it suggested.
CBI chief executive Rain Newton-Smith said: ‘Tax rises and spending cuts are unpopular, but the reality is that the Chancellor faces little choice.’
The group said the economy was already ‘stuttering’, in a dismal judgment on Labour’s record so far.
CBI chief economist Louise Hellem said: ‘There’s an overwhelming sense of a country, and an economy, in stasis.’
She said action to boost the economy had stalled, hitting business confidence and investment – exacerbated by rising business costs and growing uncertainty caused by the employment rights bill.
Ms Hellem added: ‘We’re definitely not where we want to be. Growth in the UK is much lower than everybody wants it to be.
‘Confidence is quite low at the moment. The big test for us is, does this Budget help improve decisions around investment, around hiring, and really point us as much as possible in that direction of higher growth?’
And she said income tax was ‘the most sensible to look at’ if the government is to break its manifesto promise not to put up income tax, national insurance or VAT.
‘It would have an impact on consumption but it would not be as damaging,’ she said.
It comes after analysis by the National Institute of Economic and Social Research (NIESR) yesterday revealed that the scale of the financial black hole meant middle earners could be hit with a particularly stinging income tax raid.
While Ms Reeves could gain £20 billion through a 2p in the pound raid on basic rate income tax payers, she may also be tempted to raise £10 billion by slapping a 5p increase on more than seven million people on higher rates, who are paid more than £50,270.
Those include not just the wealthy but striving middle earners such as teachers and nurses.
Other speculation has pointed to mansion taxes and pensions being in the Chancellor’s sights.
And Labour’s backers at trade union Unison want Ms Reeves to impose a wealth tax – which would mean paying 2 per cent on assets over £10 million every year.
A new report from wealth manager Rathbones today [THURS] warns that professionals and business owners are becoming increasingly anxious about being targeted in the Budget.
Camilla Stowell, chief executive for wealth at Rathbones, said these were ‘the people whose ambition and success underpins the prosperity of businesses, organisations and communities across the UK’.
She added: ‘We worry that the government may lose sight of the need for aspiration, and to support and encourage people to strive, build and succeed – because this is how the economy and country will succeed and grow.
‘Short-term tax changes which undermine this may ultimately further slow economic growth.’
A chorus of business leaders have criticised Labour’s handling of the economy.
Ryanair boss Michael O’Leary this week said the UK was ‘doomed’ under the present government while M&S boss Mr Machin last month urged the Chancellor to ‘change course’ to escape an ‘economic doom loop of ever higher taxes and lower growth’.
