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Business leaders are approaching the upcoming Budget with unease, recalling the significant tax increases imposed last year that hit many companies hard. Among the most impactful measures were the £25 billion hike in National Insurance and a substantial increase in the minimum wage, both of which have left firms struggling to adjust. In recent months, sentiment among CEOs and financial directors has grown increasingly shaky, signaling heightened concern as the Chancellor prepares to deliver her second Budget.
Experts widely expect further tax rises, which will inevitably remove money from the economy. Capital Economics predicts that the Budget could reduce GDP by 0.2% in 2026 – a considerable setback, especially given the economy’s modest 0.1% growth in the third quarter of this year. In contrast, the Bank of England is anticipated to ease monetary policy by lowering interest rates, encouraging borrowing and spending, which may offset some of the negative effects. A senior government adviser noted, “a lot of the ‘big things’ that affect business confidence, including inflation, are expected to fall next year,” and suggested the Chancellor might emphasize such positive developments. The government also hopes to reassure businesses by avoiding unforeseen tax hikes or broad, indiscriminate increases in this Budget.
One pressing issue revolves around business rates, which have become a significant headache for many firms. After a pandemic-related discount was reduced from 75% to 40%, numerous businesses saw their rates nearly double. The Chancellor has indicated plans for reform, potentially making some discounts permanent and addressing the sharp cost increases small businesses face when expanding. To fund this, higher rates might be levied on the largest retail properties. Meanwhile, the upcoming Planning and Infrastructure Bill, described by the Chancellor as “probably the biggest thing we will do this parliament,” aims to reduce growth barriers. On the business front, the Business Secretary is expected to unveil policies focused on cutting energy bills for thousands of companies and boosting lending through targeted investments in sectors identified within the industrial strategy.
Other topics drawing attention include the possibility of new taxes on bank profits, though ministers worry this may conflict with the government’s growth and investment agenda. Instead, the Treasury might reduce payments to the Bank of England relating to losses on government bond sales from the pandemic period. This would effectively act as a tax on commercial banks. The oil and gas sector, facing shrinking investment and closures with low oil prices, is lobbying for relief from “windfall” taxes that currently impose an additional 38%, beyond the standard 40% industry rate. There is speculation the tax might be phased out earlier than scheduled in 2030. Additionally, concerns remain over the Employment Rights Bill, which guarantees sick pay and protection from unfair dismissal from day one of employment. Business leaders, including Rain Newton-Smith of the CBI, warn that this could discourage hiring, though the government has not indicated a policy change, planning multiple consultations on its implementation. Another anticipated policy is a cap on salary sacrifice pension schemes, widely used by larger employers, raising fears about the future generosity of workplace pensions.
As the Budget approaches, the government seeks to restore confidence by signaling support for businesses that endured significant demands last year. Encouragingly, a survey by Barclays found that while 55% of business leaders are postponing investment decisions until after the Budget, 43% expect to increase investment subsequently, suggesting a cautious optimism. Despite this, overall confidence remains fragile, requiring the Chancellor to tread carefully in balancing fiscal measures with the need to foster a stable business environment
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