Higher tax burden one of top threats facing corporate Britain, leaders warn

Jeremy Hunt’s tax raid poses one of the biggest threats to UK businesses this year, according to a survey of British bosses that urged the Chancellor to make restoring competitiveness a “priority” for the Budget.

Business leaders said reducing the tax burden on companies and their staff were two of their top three policy priorities this year.

Energy support was also one of the most important issues for businesses, according to Boston Consulting Group’s survey of 1,500 British business leaders.

A quarter of company bosses surveyed also said higher taxes posed one of the biggest threats to doing business, while 40pc said they were still struggling with energy costs.

Companies and workers across the UK face paying higher taxes from April, as corporation tax rises from 19pc to 25pc, investment incentives are removed and employees are forced to hand more of their pay to the taxman as tax-free thresholds are frozen until 2028.

Inflation also remains stubbornly high, at above 10pc, although most economists expect the rate of price growth to fall sharply this year.

Raoul Ruparel, director of BCG’s Centre for Growth and a former government adviser, said businesses were looking for some relief from the Chancellor to boost confidence and raise the chance of the UK avoiding recession.

“A lot of businesses I speak to feel like they're getting squeezed from all sides,” he said. “And I think that is part of what comes through in the findings which links back to the tax environment, and what the Government can do to ease that pressure on their margins.”

It came as new research from EY found that the cost of living pressures will intensify the UK’s regional divide, stoking pressure on the Government’s levelling up agenda. 

While the consultancy predicts the UK as a whole will see a 0.6pc drop in growth this year, the hit to the capital’s economy will be much gentler at 0.2pc.

Meanwhile, regions like Yorkshire and the Humber and the East Midlands are expected to suffer the steepest drops at 1pc each.

The fall is driven by the services most dependent on household spending such as retail, hospitality and entertainment.

London’s strong financial services and other knowledge-based sectors provide a buffer against the worst of the blow, according to the research.

Rohan Malik, EY’s UK&I Managing Partner Markets & Accounts, said: “Levelling-up presents an opportunity to boost growth for the whole of the UK – but familiar patterns are still all too present as the economy recovers from the pandemic.”

Londoners and those in the South East are more resilient in the face of rampant inflation as their earnings are significantly higher than the national average, the report also highlighted.

There’s another big blow coming for Britain’s embattled businesses

By Brian McBride, President of the Confederation of British Industry

If there’s one thing I’ve learned throughout my career in business, it’s that raising business taxes is never the way to stimulate an economy and deliver growth. It puts boardrooms on edge, and it makes investors think twice about their next move. I know, I’ve been in those discussions.  

That’s why I’m concerned about the six-point increase to headline corporation tax coming down the line in April, especially when there’s currently nothing on offer to offset it. With levels of business investment only now returning to pre-Covid levels, I’m worried about the kind of signal being sent to those looking to invest in the UK. For some, such a stark rise will be an immediate red flag.  

With the Bank of England already warning about a 5.6 per cent fall in business investment this year, and the Government firmly set against a U-turn, we have to find a smarter solution. One that offsets the rise in corporation tax with investment incentives elsewhere and properly rewards those that invest in the UK.  

Fortunately, there’s already a model to follow – one that delivers results. The super-deduction, designed by the Prime Minister, has had a significant effect on business investment decisions. 

A Confederation of British Industry survey showed a fifth of business investment planned while it was in place would not have happened without it – with another fifth brought forward to benefit from it. These capital investments make our firms more effective, efficient and productive. 

The super-deduction is a policy that not only made CEOs take notice but makes Britain a far easier bet for investment. The bad news: it’s coming to an end just as the corporation tax rise kicks in, and the hit to Britain’s competitiveness will be significant. 

With the super-deduction in play, the UK has the fifth most competitive capital investment incentives in the OECD. Without it, we could slip back to 30^th out of 38 countries.  

So, let’s learn from our successes by replacing the super-deduction with a permanent investment deduction of 100 per cent that would get firms of all sizes across the UK investing. That could deliver a massive uplift in capital spending that will not only pay for itself over time but actually bring in higher revenues. 

If that’s – wrongly in my opinion – viewed as too expensive right now, we could look at a way to start at a 50 per cent allowance in April and phase up to 100 per cent over three years. 

Ahead of the Budget, this isn’t the only issue troubling the minds of executives. Boardrooms across the country are scratching their heads, wondering how they can access the people and skills they need to grow. It’s a longstanding problem, and certainly one I wrestled with in previous roles, but it only seems to be increasing year-on-year.

Talk to any business leader across the country and they’ll share their frustrations with an education and skills system that feels disconnected from the needs of modern business. I’ve lost count of the number of CEOs who tell me they want to invest in their own workforce but are being held back by the Apprenticeship Levy. 

Having been in charge of huge employers myself, what firms want is a range of high-quality training options, from vocational training to top-ups, modules and bootcamps, offered across a range of settings. The Apprenticeship Levy does not do that. 

To their credit, many in government understand this – the level of levy funds being returned to Whitehall has been a none too subtle clue. We propose transforming the Apprenticeship Levy into a two-year “skills challenge fund” pilot that’s more flexible and responsive to the needs of business.  

There’s also huge concern about the number of people that want to work but are leaving – or not joining – the workforce due to ill-health or caring responsibilities. That’s not just a massive loss of talent, but a limiting factor on people’s life opportunities and economic growth – there are more than one million job vacancies in the UK right now. 

Helping economically inactive people back into the workforce is a more complex challenge. Firms clearly have a role to offer more flexible working patterns, but ultimately, it’s an area where we need Government to also stand-up and be counted.  

With full time nursery costs in England now accounting for almost two-thirds of an average person’s weekly take-home pay, it’s time to take a detailed and clear-eyed look at a childcare system that’s failing working parents. 

Let’s use the Budget to really review provision and ensure providers are receiving funding that reflects the true cost of their service. We also need to extend existing provision for 3- and 4-year-olds to all 1- and 2-year-olds to help get more parents back into work. 

On economic inactivity due to ill-health, something that’s now at its highest level in 20 years, we need to look at ways that employers can support workers in preventing health issues in the first place. 

Making access to support for musculoskeletal conditions, mental health and ergonomics – three of the highest workforce health risks – a non-taxable benefit, could not only improve the take up of this support and increase workforce output but reduce pressure on an over-burdened NHS. 

After a turbulent few years, investors are keeping their cards close to their chests when it comes to investment intentions.

With all eyes on the Spring Budget, my sense is that pragmatic business leaders will only wear that hike in corporation tax rise if the other sums add up. Without an incentive alongside, then April will just see a damaging hit to UK competitiveness. 

With news that there may be a little more fiscal headroom to play with, it feels like a case of “your move Chancellor.”