U.K. Employers Say Government’s Budget Will Weigh On Economic Growth

A leading employers’ group has reduced its projection for economic growth due in part to new measures introduced in the Labour government’s first budget, which has sparked a chorus of complaints from the business community.

The Confederation of British Industry (CBI) said that growth in 2025 is projected to be 1.6%, down from an earlier forecast of 1.9% made in June. And the group’s outlook for this year was trimmed to 0.9% from its earlier estimate of 1.0%.

“Measures in the autumn budget will increase firms’ costs at a time when their profit margins have already been under pressure,” Louise Hellem, the CBI’s chief economist, said in a Friday statement.

“Many businesses have told us that these measures will likely push up prices and weigh on their hiring and investment plans going forward,” she added.

The CBI’s data showed that hiring intentions worsened significantly in November following the Autumn budget.

Britain’s finance minister Rachel Reeves announced the biggest tax increases in three decades in her first budget, while blaming the Conservatives for leaving her party with a £22 billion ($28 billion) fiscal “black hole.” But this figure is disputed by the Conservatives and other sources.

The Labour Party had pledged in the run-up to July’s general election that there would be no increases in income tax, National Insurance or VAT (value added tax)–the government’s three largest sources of revenue.

But Reeves announced in her October 30 budget that the rate employers pay for National Insurance would increase from 13.8% to 15% in April next year. She also lowered the threshold employers start paying National Insurance on employees’ earnings from £9,100 a year to £5,000.

The hike in taxes has led to many businesses saying they will be hit hard by the increase in costs, which will eventually filter through to employees and customers.

Just a day prior to the CBI’s report, the Bank of England echoed that view when it said that more than half of the companies surveyed by the institution had indicated that they planned to hike prices and cut jobs in response to the budget.

The bank’s data revealed that 54% of respondents expect to raise prices and the same proportion said they would lower employment, while 38% expect to pay lower wages than they otherwise would have done.

Meanwhile, British billionaire James Dyson has described the budget as “an egregious act of self-harm” on the economy. The industrialist said in a letter to The Telegraph that the increase to National Insurance combined with changes to the inheritance tax on family businesses “will kill entrepreneurship, snuff out wealth creation and stunt growth” in the economy.