Two of London’s leading business groups have reacted with concern to Rachel Reeves’s budget, expressing worries that a combination of higher taxes on employers and a hike in the statutory national minimum wage rate will make it more difficult for firms in the capital to thrive and help produce the government’s desired increase in economic growth.
Reacting yesterday, Karim Fatehi, chief executive of the London Chamber of Commerce and Industry (LCCI) said “London businesses are losing faith in the government’s economic growth strategy”, arguing that they have been left “shouldering the consequences of this Budget with minimal support” having been “promised stability and an operating environment conducive to growth”.
Muniya Barua, deputy chief executive of BusinessLDN, made similar points, saying “a hike in employer national insurance contributions will be difficult for many firms to absorb on top of an above-inflation rise in the minimum wage. This may force employers to think again about hiring at a time when London’s labour market is stalling and unemployment in the capital is at a three-year high.”
The Chancellor said that £40 billion will be raised from taxes, with more than half of that coming from an increase in the rate of National Insurance paid by employers and a lowering of the threshold at which they start having to pay it. The changes are designed to enable more public investment, including such as the National Health Service, as part of an overall increase in annual spending to £70 billion a year, but Reeves has accepted that this is likely to have adverse effects on wages increases, prices and employment.
This is in line with the assessment of the independent Office for Budget Responsibility’s view that more than half of the cost to companies of paying higher taxes will be passed on to workers and consumers and the rest absorbed in the form of reduced profits. The OBR estimates that the employer National Insurance rise will “reduce labour supply by 50,000” but also anticipates employment rising “by around 200,000 a year on average between 2024 and 2029, owing to population growth”.
Both Barua and Fatehi expressed regret that Reeves did not do away with the so-called “tourist tax” – the ending by the Conservatives of VAT-free shopping for overseas visitors – which, according to Fatehi, is costing Britain as a whole “£11.1 billion in lost GDP every year” due to potential high-spending visitors, many of whom would come to London’s West End in particular, being deterred.
There were welcomes, however, for news that funding will be provided for extending the HS2 rail link from Old Oak to Euston station, with Barua also praising “changes to the fiscal rules to boost infrastructure spending” and Reeves’s focus on housing. She and Fatehi renewed pleas for a new, long-term funding deal for Transport for London as soon as possible, and Fatehi applauded “commitments to transform the Apprenticeship Levy into a more flexible scheme”.
Barua urged the government to put the capital’s devolution deal on a par with those of Greater Manchester and the West Midlands, which were given “trailblazer” settlements under the Tories, allowing those regions’ Mayors far more control over how their funding is spend. The government has committed to exploring how an “integrated settlement” of that kind might apply to London “from 2026/27”.
Dave Hill is the publisher and editor of OnLondon.co.uk. Support this unique website and its freelancers for just £5 a month or £50 a year and get things for your money that other people don’t. Details HERE.