Rachel Reeves faces ire of once ‘super-bullish’ business

UK Chancellor of the Exchequer told the annual meeting of the Confederation of British Industry her budget will be good for growth

Britain's Chancellor of the Exchequer Rachel Reeves speaks at the Confederation of British Industry annual conference in London. AFP

UK Chancellor of the Exchequer Rachel Reeves defended increases to payroll taxes in the recent budget to Britain's business leaders by insisting her plans will mean economic growth and more jobs in the future.

Ms Reeves said if she had not made difficult decisions, the government would not have been able to "bring the stability back to the economy that is desperately needed”.

“If you take the measures from the budget in the round, the Office for Budget Responsibility says that unemployment falls, employment levels rise, wages rise, real household disposable incomes increase over the course of this Parliament," she told the annual general meeting of the Confederation of British Industry. "So, it’s good for jobs and it’s good for growth.”

Despite polite applause, the chancellor received a somewhat frosty reception from business figures in London on Monday, with terms such as "lion's den" and "hostile environment" used to describe the setting at the CBI meeting.

Bosses had complained bitterly about the severity of tax rises in Ms Reeves's budget last month, particularly the increase in the payroll tax and employers' national insurance contributions, which could cost business around £25 billion ($31.44 billion).

“It’s really important that the sums add up and I’m determined to be the chancellor that puts our public finances on a firm footing after all the instability that we’ve faced these last few years," she said. "I’ve had lots of feedback on the budget, but what I haven’t had is any credible alternatives to what I did to put our public finances on a firm footing."

Nonetheless, the chairman of the CBI, Rupert Soames, countered by claiming businesses had been "milked as the cash cow" in last month's budget, but added the corporate tax roadmap was one of the "useful" items in it. "But at the same time," he said, "we have a budget which makes employing people, particularly the young, part-time and low-pay much more expensive."

'Caught off guard'

Meanwhile, Salman Amin, chief executive of McVitie's bakery products' parent company Pladis, told the gathered heads of industry it is "becoming harder to understand" the case for investing in the UK.

"Historically, we've been super bullish on the United Kingdom," he said. "In fact, by far our greatest investment across all of our countries over the last decade or so has come to the UK. Small amounts one can understand, but the quantums that I think we need to make a difference in the growth rate of the economy are in the order of tens of millions every year. In the last couple of years, it's just become a lot harder to really see how does that play out," Mr Amin said.

Opening the CBI's conference earlier, its chief executive, Rain Newton-Smith, said the rise in NICs "caught us all off-guard".

"Along with the expansion and the rise of the national living wage – which everyone wants to accommodate – and the potential cost of the Employment Rights Bill, they put a heavy burden on business," she added.

Ms Newton-Smith said the government must consult more with business before springing surprise tax increases, and that "tax rises like this must never again be simply done to business. That's the road to unintended consequences".

Shares in Kingfisher, which owns the do-it-yourself chain B&Q in the UK, ended 13 per cent lower on the London market on Monday, after an announcement by the company that its tax bill will rise by £31 million next year as a result of the NIC changes.

“If growth is a superpower, the measures announced in the budget have been received as if they’re a kryptonite specific to business," said Danni Hewson, head of financial analysis at AJ Bell. "Changing that perception and getting business back on side can and must be achieved if Rachel Reeves is going to deliver on some of the pro-growth strategies. like building more homes and getting the long-term unemployed back into a job."