Tax rises to hit growth and investment, warns CBI boss

Speaking at CBI’s Annual Conference, Newton-smith, said “margins are being squeezed and profits are being hit – by a tough trading environment that just got tougher.”

The CBI chief started out by praising the Labour government’s ‘vision of growth’ but tempered optimism with concerns over the impact of the recent budget.

Last month, chancellor Rachel Reeves delivered the Labour government’s inaugural budget, announcing National Insurance contributions for employers would rise 15 per cent from 13.8 per cent on workers’ earnings above £5,000.

Speaking to Radio 4’s Today Programme Newton-Smith said: “No-one is questioning that we need to see the tax rises to really help fund our public services.”

However, Newton-Smith claimed, during her speech, the announced tax rises caught businesses “off guard”, putting a “heavy burden on businesses.

She continued: “Even where the risk isn’t critical, firms that have been through really tough years are now in damage control again.

“They are looking with heavy hearts to cut training and investment, delay net zero projects, or pass on costs to customers.”

She went on to argue that profits allow firms’ to create new jobs and invest back into the business, or in the case of SME’s, “profits are survival”.

According to the latest insolvency service data, 4,310 Construction companies of various sizes went out of business in the UK in the year to August, with specialist contractors accounting for 58 per cent (2,514 firms).

Meanwhile, Research from the Construction Industry Training Board predicts that the construction industry requires an extra 251,000 workers by 2028, to meet expected levels of employment.

Newton-smith added: “Right now, there are an estimated nine million working-age people out of the labour force

“The Budget just made it harder for firms to take a chance on people, and almost two-thirds are looking to cut their plans to hire.”

Following the budget the construction industry largely welcomed much of the planned announcements, however, it was met with some caution with some claiming higher taxes could put a strain on smaller firms.

Eddie Tuttle, director of policy, research and public affairs at CIOB, said: “Increased funding for new infrastructure is welcome – as is the continued emphasis put on housing – but higher taxes, like increased employer National Insurance contributions, are likely to increase financial strains on the SMEs that are so vital to the industry and its supply chain.  

“Nearly a fifth of UK SMEs operate in construction and the cyclical, boom-bust nature of the sector, as well as recent economic hardships, have created a difficult environment for these businesses.

“Increased tax rises without consistent monitoring of the impact they have on the health of crucial sectors, such as construction, run the risk of damaging the pivotal role SMEs play. 

“We urge ongoing government consultation with bodies like CIOB to monitor these impacts on the sector.”

Meanwhile Brian Berry, chief executive of the FMB, said: “The Chancellor’s decision to significantly increase employers’ National Insurance contributions will create major headaches for firms looking to take on staff at a time when the building industry is in desperate need of new workers. 

“However, it is good that the Chancellor has shielded small companies by increasing Employment Allowance, as is the rise in the Apprenticeship wage which will help increase the appeal of a career in construction for young people.”