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Rachel Reeves was accused last night of turning her back on economic growth as businesses prepare for a budget attack that will drive up costs and threaten livelihoods.
The Chancellor will today hit British businesses with an increase in employers’ national insurance contributions of up to 2p, having previously branded the rate an “employment tax”.
The national insurance raid – which could raise up to £20bn – is accompanied by a 6.7 per cent rise in the minimum wage to stamp out inflation and a workers’ rights package costing businesses £5bn. pounds per year.
Cash call: Rachel Reeves will hit British businesses today with an increase in employers’ national insurance contributions of up to 2p, having previously branded the tax an “employment tax”.
The Institute of Directors described the triple whammy as a “perfect storm”, while the Institute for Fiscal Studies (IFS) said the higher costs facing businesses could cost jobs.
Former CBI chairman Lord Bilimoria, founder and chairman of Cobra Beer, accused the Government of abandoning its promise to put economic growth at the center of its plans.
“This budget is going to turn many of our worst nightmares into reality,” he told the Mail.
‘They keep talking about growth, but they are doing everything they can to stop the growth. Every measure they are taking is going to stifle growth. It will be a huge burden for companies and a brake on investment. National insurance is a tax on employment.’
Nick Mackenzie, chief executive of the Greene King pub group, said: “There are some cost increases taking place which are impacting our industry and our businesses, and potentially having an effect on our ability to invest in long-term growth.”
The Budget will leave Labor facing accusations that it has breached its manifesto commitment not to “raise taxes on workers” or increase national insurance, income tax or VAT.
While Labor insists this only covered national insurance for employees, not employers, critics said workers would still be hit by lower wages and poorer job prospects. “I can’t think of any tax that doesn’t affect working people,” said IFS director Paul Johnson.
Xiaowei Xu, senior research economist at the IFS, added: “If the Government enacts a combination of a minimum wage increase, an increase in employers’ national insurance and the workers’ rights bill, companies may respond by reducing the employment”.
Last week, the Labor Party revealed that its workers’ rights package – which includes flexible working, parental leave and sick leave from day one – will cost businesses up to £5 billion a year.
Last night ministers announced a 6.7 per cent rise in the minimum wage to £12.21 an hour with a 16.3 per cent rise for under-21s to £10 an hour, leaving businesses facing costs even higher. And the increase in national insurance will be one of the main revenue generators.
Alexandra Hall-Chen, employment expert at the Institute of Directors, said: ‘Any of these factors will have a significant impact on business costs.
‘All in all, this is something of a perfect storm for businesses and will be a significant disincentive for employers to hire new staff.
We urge the Government to consider the combined impact of these policies and adhere to its pro-growth and pro-business mission.’
Kate Shoesmith, of the Recruitment and Employment Confederation, said: “Businesses have raised concerns with us and the Government about their ability to continue trading if there are substantial further increases in their cost base in the short term.”
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