Labour faces business warning on workers’ rights and tax hikes

Published

2 months ago

September 2, 2024

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Labour is facing a drop off in confidence among business leaders amid plans for tax rises and improvements to workers’ rights, according to a survey.

The Institute of Directors (IoD) had noted a leap in optimism in July among its membership as the new government came to power.

But its latest economic confidence index showed a slump from a three-year high, falling into negative territory in August.

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Major indicators to show the biggest declines included business investment and employment.

Others to fall back were expectations for revenue, exports and wages.

Recent data has shown the UK economy to have the fastest economic growth in the G7 over the first half of the year.

Prime minister Sir Keir Starmer and his chancellor Rachel Reeves have made securing growth the “top priority” but complain their plans are being complicated by a legacy £22bn black hole in the public finances.

“Tough choices” they have already announced, ahead of the 30 October budget, have included cutting winter fuel payments for all pensioners.

Critics argue the tough choices include caving in to union demands to avert strikes, racking up a £9bn bill across public sector pay awards.

Commentators widely expect hikes to wealth taxes, such as capital gains tax, in the budget as it would chime with Sir Keir’s warning last month that those with the broadest shoulders would face the greatest burden.

An Employment Rights Bill is also due to prohibit zero-hour contracts and ban so-called fire and rehire tactics.

One particular sector to raise fears of an own goal was energy.

Industry body Offshore Energies UK claimed government plans to increase a windfall tax on North Sea oil and gas producers would lead to a £12bn fall in revenue to the state, due to weaker production and investment.

The IoD survey findings represent a major turnaround in opinion.

Ms Reeves secured a strong relationship with business in the run up to the election as firms ran out of patience with the Conservatives, long complaining of a lack of communication and strategy.

IoD chief economist Anna Leach said of its findings: “It’s disappointing to see last month’s welcome uptick in business leader confidence snuffed out over the summer.

“It is notable that the sharpest drops in our economic measures are in investment and headcount expectations, whilst other measures have moved to a lesser degree, albeit in a likewise negative direction.

“The newsflow in recent weeks on employment rights and autumn tax rises has dented confidence in the environment for business in the UK.

“As we head into a busy autumn, we are calling on the government to take time to get policy design right for the long-term and deliver the stable tax and policy framework needed to drive business confidence and investment.

“Further clarity on the industrial strategy and the business tax roadmap, in conjunction with more progress in engaging with business on workers’ rights, would be welcome.”

The findings chime with warnings that the budget should not seek to rake in cash at the expense of the economy.

Former president of the CBI, the Cobra beer founder Lord Bilimoria, said fears of tax increases would spark an exodus.

He called on the government to concentrate on growth, calling any rise in capital gains tax “a short-sighted move”.

“Investors are not going to come here if you keep putting up taxes,” he told the Daily Mail.

“It will not bring in more money; in fact, money will fly from this country.”

His comments were echoed by lastminute.com co-founder Brent Hoberman, who told the newspaper it “does not make sense to scare off business investment”.

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Politics

NY Supreme Court allows Greenidge to keep mining, but challenges remain

Published

2 hours ago

November 15, 2024

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NY Supreme Court allows Greenidge to keep mining, but challenges remain

The state Department of Environmental Conservation botched the permitting process, but it still gets a do-over.

Politics

UK economy grows by 0.1% between July and September – slower than expected

Published

2 hours ago

November 15, 2024

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UK economy grows by 0.1% between July and September - slower than expected

The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).

However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the three month period.

The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.

Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.

And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.

Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Am I satisfied with the numbers published today? Of course not. I want growth to be stronger, to come sooner, and also to be felt by families right across the country.”

“It’s why in my Mansion House speech last night, I announced some of the biggest reforms of our pension system in a generation to unlock long term patient capital, up to £80bn to help invest in small businesses and scale up businesses and in the infrastructure needs,” Ms Reeves later told Sky News in an interview.

“We’re four months into this government. There’s a lot more to do to turn around the growth performance of the last decade or so.”

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The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector.

The UK’s GDP for the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.

The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.

It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.

The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.

The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.