Businesses warn of additional layoffs to meet tax increases' demand
Revised Article
British businesses are bracing themselves for another wave of job cuts in the wake of Rachel Reeves' hike in national insurance, as financial strain from the £20bn tax increase looms large.
A third of businesses have announced their intent to slash staff, according to a survey by S&W, with hiring freezes and reduced working hours also on the horizon for many companies.
The government's move saw the rate of employers' national insurance contributions (NICs) surge to 15%, alongside a drastic cut in the salary threshold to £5,000 at last year's Autumn Budget. As a result, more than half of UK firms have taken a hit, cutting their workforce in response to Reeves' raid.
In addition, the survey revealed that the majority of these companies are considering boosting their price tags to manage the inflation pressures brewing as a consequence.
This week, the Office for National Statistics (ONS) is set to publish data on price growth for May, while the Bank of England is expected to maintain interest rates, signaling that the negative economic impact of the NICs hike will likely persist.
Six out of ten companies are aggressively embracing technological advancements and automation to minimize labor costs, suggesting a possible decline in job vacancies.
Claire Burden, S&W partner, stated, "Salaries often represent a significant portion of a business's overall cost base. With the increased national insurance costs, many businesses have had to consider closer scrutiny of their headcount."
Taxes: An Inescapable Cycle
The escalating unemployment rate and subdued business confidence owing to the NICs could force Reeves to reconsider her expenditure plans post the £190bn splurge on public services.
Sluggish employment levels and economic growth in the second quarter of the year could inflate borrowing, according to Deutsche Bank.
The UK faces the risk of getting stuck in a "doom loop" for tax policies as gilt yields remain high. The potential consequences include higher borrowing costs and diminished tax receipts, despite the Chancellor's commitment to increasing capital expenditure as part of a ten-year infrastructure project to boost productivity.
Government aspirations to boost British workers may be thwarted if businesses are compelled to make tough decisions. If the economic restrictions caused by the NICs tax increases persist, experts are on alert for additional taxes that could compound the fiscal issues.
A fresh tax hike under consideration involves raising the top rate of tax on dividends beyond 39%, a possibility that has caused consternation among industry experts. The surcharge tax on banks could also be hiked to five percent, a move that leads analysts to express concerns about the competitiveness of domestic banks versus financial institutions in New York and European capitals.
- British businesses are considering boosting their prices due to the inflation pressures caused by the increased national insurance costs, as stated by S&W's survey.
- Rachel Reeves' hike in national insurance has led to a third of businesses announcing job cuts and hiring freezes, according to S&W's survey.
- Six out of ten companies are eagerly adopting technology and automation to reduce labor costs, according to S&W, potentially leading to a decline in job vacancies.
- The UK government's increased tax expenditure, coupled with potentially forthcoming tax hikes, could create a "doom loop" for tax policies, resulting in higher borrowing costs, diminished tax receipts, and potential damage to productivity and competitiveness, as predicted by experts.
