Accountants warn more tax rises will crush jobs market 

Accountants warn more tax rises will crush jobs market 

Chancellor Rachel Reeves has been warned that any further tax rises on businesses in next month’s Budget could “crush” Britain’s jobs market, as confidence among employers plunges and firms prepare to freeze hiring or cut staff. 

Accountants at the Institute of Chartered Accountants in England and Wales (ICAEW) sounded the alarm after a new survey revealed that 56 per cent of employers would respond to another round of tax increases by cutting jobs or pausing recruitment. 

The findings come as Reeves scrambles to plug an estimated £30 billion fiscal gap without breaking her manifesto pledges not to raise income tax, employee National Insurance, or VAT. 

ICAEW chief executive Alan Vallance has issued a stark warning at the institute’s annual conference in London today. He has told hundreds of business leaders: 

“The reality is that Britain faces a damaging cliff edge if the Chancellor decides to raid businesses again at next month’s Budget.” 

“Tax is holding back growth, so it’s only natural that growing fears over more tax hikes in November are choking off investment, hiring and innovation. Business confidence is fragile, investment is stalling, and everyday decisions are being slowed by complexity, cost and uncertainty. 

“Firms also tell us it’s too expensive to do business, with confidence in free fall over skyrocketing operating costs amid high taxes, an outdated business rates system and soaring energy bills.” 

The ICAEW said Britain’s “growth mission” is at risk if the Chancellor targets employers again, warning that businesses are already struggling with high costs and weak demand. 

Employers on edge 

According to the ICAEW’s survey of 659 senior executives, nearly half of businesses have already cut jobs or frozen hiring since the Chancellor increased employers’ National Insurance contributions in April. Vacancies have fallen almost continuously for the past three years, and unemployment has now risen to 4.8 per cent, its highest level since Covid. 

If Ms Reeves raises corporate or payroll taxes again, half of firms say they would likely raise prices, while two in five plan to cut investment. 

Inflation remains stubborn at 3.8 per cent, almost double the Bank of England’s target. Economists warn that new tax hikes could deepen Britain’s productivity malaise and slow progress toward taming inflation. 

Labour’s fiscal tightrope 

Ms Reeves is under pressure to find new sources of revenue to stabilise the public finances after weaker growth and rising borrowing costs blew a hole in her spending plans. With her key manifesto pledges limiting the main levers of taxation, the Treasury is understood to be exploring options such as reforms to business rates, windfall levies, or reductions to capital allowances. 

But critics say hitting employers again risks derailing the very investment and job creation the Government has promised to revive. 

Economists warn of ‘sticky inflation’ 

Former Bank of England rate setter Jonathan Haskel said this week that the UK’s “sticky inflation” problem stems from a weakening labour market, partly caused by previous tax decisions. Speaking at the Institute for Fiscal Studies, he said: 

“Inflation is forecast to be relatively much higher in the UK than elsewhere. Where does that sticky inflation come from? The sticky inflation comes from the deteriorating labour market. 

“Where does the deteriorating labour market come from? The Chancellor has made choices. The choice to increase National Insurance contributions at the lower level, along with a more than expected increase in the minimum wage, has essentially raised the natural rate of unemployment.” 

His remarks underscore fears that rising taxes and labour costs could trap Britain in a cycle of weak growth and high prices. 

The Laffer Curve 

The warnings echo the economic theory known as the Laffer curve which shows there is an optimal point for taxation. Beyond that point, higher tax rates discourage work, investment and entrepreneurship, reducing total tax revenue rather than increasing it. 

Economists stress that the UK has reached, even surpassed this threshold for business taxation. By raising employer contributions or corporation tax too far, the Treasury risks shrinking the tax base as companies curb hiring and output. Many companies also relocate to countries with lower tax obligations. 

In other words, as ICAEW warns, higher rates could backfire, hurting jobs, growth and even the very revenues Ms Reeves seeks to raise. 

Confidence in free fall 

Business groups have described a “perfect storm” of high energy costs, complex regulation and mounting tax burdens. ICAEW’s quarterly Business Confidence Monitor shows sentiment among firms has fallen to its lowest level since the pandemic, with six in ten businesses citing the overall tax burden as their biggest challenge. 

With the Budget now just weeks away, Ms Reeves faces one of the toughest tests of her tenure, how to raise revenue without breaking promises, or breaking the economy. 

This article is sourced from the following link: 

https://stratfordobserver.co.uk/news/accountants-warn-more-tax-rises-will-crush-jobs-market-58509/