Labour’s Business Backlash: How Tax Hikes and Policy Shifts Are Straining Corporate Ties

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When Rachel Reeves steps up to deliver her first Mansion House speech, she’ll likely receive polite applause from the gathered business elite. Yet behind the scenes, an increasing number of business leaders who backed Labour before the election are now voicing serious concerns. Reeves’ budget, which involves a £25 billion increase in employers’ national insurance contributions, has many in the business community questioning the future of Labour’s pledge to be the “party of business.”

 

In defense of the tax hike, the Chancellor has argued that companies should be able to adjust and absorb the increased cost. However, some of the UK’s largest companies are warning of rising prices and potential job losses as they attempt to safeguard shrinking profits. This stance is in stark contrast to Labour’s promises during the campaign when Reeves asserted that her party would be the champion of “wealth creation” and business.

 

Businesses are now grappling with what they describe as a “perfect storm” of burdensome policies: tax hikes, an increased national minimum wage, and the most sweeping overhaul of workers’ rights in a generation. “You cannot just engage on the way in,” remarked the CEO of one of the UK’s largest retailers. “You have got to keep business with you. With workers’ rights, the consultation worked, but the rise in the national insurance contributions was unexpected.” Another advisor to a major FTSE 100 firm was more direct, saying, “Business is feeling very sore. Two years of supine breakfast, and the first chance they get, they give business a slap.”

 

Business groups have begun to mobilize in response. The British Retail Consortium has warned that job losses and price hikes are “inevitable.” The Institute of Directors expressed that the budget poses a “damaging hit,” while the Confederation of British Industry voiced concerns that Labour’s budget lacks a clear “plan for growth.”

 

In opposition, Reeves positioned Labour as more pro-business than even Tony Blair’s administration, with promises to stimulate private investment. To bolster this commitment, Labour established a British infrastructure council that brought on board leading financial players such as Lloyds, HSBC, Santander, and Fidelity. However, as the impact of Labour’s new budget settles in, some business leaders are speaking out. Andrew Higginson, chair of JD Sports, stated that Labour’s tax increases would be “too much to bear” in tandem with the minimum wage hike. “The cumulative effect of all these changes is too much for industry to bear,” he warned, “in the sense of them being able to get on and invest and grow.”

 

Mark Glover, executive chairman of SEC Newgate UK, noted that while Labour’s emphasis on growth had been promising, the decision to increase employers’ national insurance contributions struck many as counterproductive to that goal. “They can’t quite see how that’s encouraging growth,” he said. Emma Woods, chair of the restaurant chain Tortilla, had been among those who initially endorsed Labour. But now, alongside other hospitality executives, she is voicing fears of “unprecedented damage” to the industry from rising employment costs.

 

Adding to the discontent, Sir Tim Martin, CEO of Wetherspoons and a former Tory donor, has warned that these policies will ultimately lead to higher consumer prices. “Good economic policies require common sense and business savvy,” Martin said, emphasizing the need for an understanding of “what makes people tick.” According to him, this was “a political budget” that may dampen the optimism and “animal spirits” essential for economic growth.

 

Initially, Labour leader Keir Starmer announced plans to personally chair five “mission delivery boards,” including one focused on growth. Yet, after the election, these boards were assigned to secretaries of state rather than Starmer himself. Despite a successful investment conference in October that brought major banks and businesses to the table, the recent budget has changed the tone. Labour’s national insurance increase disproportionately affects companies with large numbers of low-paid workers, hitting major supermarkets particularly hard. Tesco, for instance, faces a £1 billion rise in its national insurance costs over the current parliament. Sainsbury’s, Morrisons, and Asda have all raised concerns over the added financial strain.

 

A Confederation of British Industry survey found that nearly two-thirds of 185 businesses now have a negative view of the budget, with many asserting that it will make Britain a less appealing investment destination. Compounding the situation, there is worry over potential U.S. tariffs. “We’re not in the EU, so we’re getting clobbered on the trade there,” commented a FTSE 100 advisor, adding that Donald Trump’s proposed import tariffs could spell further trouble. “We’re so screwed,” he added with a note of resignation.

 

In the weeks and months ahead, Labour’s relationship with the British business sector will be tested as leaders evaluate how closely the party’s rhetoric aligns with its policies. For now, many in the business community remain deeply concerned about the road ahead.

 

Based on a report by The Times 2024-11-15