Businesses Are Scapegoat in UK Budget Tax Rises

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In the bag: UK chancellor Rachel Reeves has increased the tax burden by £40bn
Owners of larger businesses will shoulder burden of almost all this year’s £25bn tax hike, leading to estimated 50,000 job losses and lower pay awards

Businesses will bear the brunt of a £40bn tax increase announced by UK chancellor Rachel Reeves in her first Budget. 

In particular, most UK employers will have to pay increased National Insurance - an additional tax paid by both workers and employers - on behalf of their staff. Workers will be exempt.

Other tax hikes that will hit CEOs of enterprise-level companies include higher taxes on second homes, private jets and private schools. 

The extra £40bn raised will take the UK tax burden to 38% by the end of the decade, the highest on record. The size of the state is forecast to settle at 44% of GDP.

National Insurance rise

National Insurance for employers will go up by 1.2 percentage points to 15% from April, while the level at which employers start paying NI for workers will drop from £9,100 to £5,000. This will generate £24bn a year in revenue, making up almost all of the £25bn in tax rises next year and more than half of the £40bn estimated by 2029.

The Office for Budget Responsibility - a watchdog that monitors UK government budgets - said the NI rise will reduce overall employment by about 50,000, with businesses passing on nearly 80% of the tax rise to workers through lower wages.

This in turn will depress consumer spending and consign the economy to modest levels of growth of 1.5% to 1.6% by the end of the decade, mirroring the torpid growth rates which have beset the UK for the last decade.

Tough budget for business

Rain Newton-Smith, chief executive of the CBI, the business group which represents the UK’s largest employers, including AstraZeneca, Unilever and GSK, called it a “tough budget for business”.

“The hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.”

Shevaun Haviland, director-general of the British Chambers of Commerce, said the increase in national insurance contributions on top of a 6.7% increase in the national minimum wage “means many firms will find it more challenging to invest and recruit in the short-term”.

Roger Barker, director of policy at the Institute of Directors, said: “At first blush, there is precious little in the government’s first Budget which offers anything other than short-term pain for the business community. The government has chosen to impose a significant new tax burden on business as a means of achieving an immediate boost to its public sector spending priorities.”

Capital gains tax

Capital gains tax has been increased to 24% on the sales of shares and other assets. The rate of 10% that applies when people are selling their own businesses will rise to 14% from April 2025 and 18% from April 2026.

Business rates

A 40% business rates relief for retail, hospitality and leisure business will be provided, capped at up to £110,000 per business for 2025 and 2026. Business rates are the business equivalent of the tax homeowners pay for essential services, such as rubbish collection and street cleaning.

Reacting to the first Labour Budget, former chancellor said Ms Reeves had chosen to “pick the pockets of businesses” to raise money for the National Health Service (NHS), and should instead have reformed welfare.

What the Budget means for UK businesses

The consensus is that businesses will hire fewer people next year, the labour market will contract and higher NI contributions will be reflected in lower pay rises. 

The tax rises on employment come on top of the expansion of workers’ rights that is planned, giving new rights to take an employer to a tribunal on day one.


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