UK Businesses Urge Chancellor to Avoid Further Tax Hikes in Upcoming Budget

UK business leaders want Chancellor John Healey to deliver a Budget on October 28 that avoids further damage to business confidence. Healey and Prime Minister Andy Burnham have held private engagements with business leaders before Healey's first Budget. Two executives said the executives had warned that the government had only one opportunity to avoid destroying business confidence in Labour. The private sector wants Healey to ease pressure on state finances by tackling public spending rather than raising revenue from business. Pragmatic business leaders largely want a Budget that causes no further harm in the absence of radical action and ambitious growth plans.

Retail chief executives told Healey at a breakfast at Number 11 on Tuesday that reducing hiring costs would help tackle youth unemployment. The British Retail Consortium and the CBI want Healey to reverse damage from the 2024 Budget by raising the employers' national insurance threshold from £5,000 to £6,000. Businesses say the increase would support entry-level jobs for young people, who often rely on retail and hospitality for their first jobs. The government has rejected a specific reduction in national insurance contributions for workers under 25. Conservative leader Kemi Badenoch has said Badenoch will introduce such a reduction. Some businesses also want a freeze on further minimum wage increases after the minimum wage rose by almost three-quarters in five years. However, Healey appears likely to await next month's publication of Alan Milburn's youth unemployment review before making national insurance concessions.

Burnham promised business rates relief for pubs and small high street premises, and the Federation of Small Business is urging Burnham to keep that promise. Burnham suggested funding relief through a higher levy on online retailers' warehouses. The Treasury appears to have abandoned a warehouse tax after companies including John Lewis and Marks and Spencer argued that the tax would also affect those companies. However, the Treasury retains the legal option to increase a rates surcharge on premises valued above £500,000. The retail, hospitality and leisure industry wants an exemption from that surcharge because a higher levy would affect hotels, department stores and supermarkets. An exemption would leave City towers and office blocks in the south bearing most of the burden. Other calls include ending inflation-linked business rates increases and accelerating rates reductions when property values fall.

Banks are preparing for higher taxes, with Healey seen as most likely to increase the bank surcharge from 3% to 8%. Former chancellor Jeremy Hunt cut the surcharge in 2023 to offset an increase in corporation tax. Domestic lenders have warned that higher bank taxes could reduce lending to businesses and raise mortgage costs across the UK. Healey described domestic lenders earlier this week as the "jewel of our crown". If taxes rise, banks want the government to state explicit expectations that the Bank of England's independent regulator consider reducing capital buffers and aligning requirements with overseas peers. City firms also want details of how the government will fulfil a pledge to cut regulation by 25%. TheCityUK puts the finance sector's annual regulatory compliance costs at £33.9 billion.

Britain has the world's highest industrial electricity costs and is particularly vulnerable to volatile gas prices. Businesses want policy costs removed from non-domestic electricity bills, including the extra renewable levy to fund Sizewell, transmission usage costs and the climate change levy. Manufacturers, particularly food and drink producers, want energy support under the British Industrial Competitiveness Scheme significantly expanded beyond the current pool of 10,000 businesses. The UK has about 130,000 manufacturing businesses.

Britain's entrepreneurs appear to have influence with Number 10 and Number 11 and are calling for tax relief rather than increases. UK venture capital firms and technology founders have lobbied against aligning capital gains tax with income tax and against any capital gains tax increase that could damage Britain's attractiveness. Venture capital firms and technology founders also want assurances that the government will not introduce exit taxes through capital gains charges on leaving the UK. Calls for capital gains relief to be deferred if proceeds are reinvested in the UK may be answered. City firms, led by the London Stock Exchange, want stamp duty on share trading removed to encourage retail investment in equities. Broader calls urge Healey to establish a more ambitious framework for pension funds to invest more of the funds' trillions of pounds in UK equities and infrastructure.