Rishi Sunak is facing renewed pressure from business leaders to delay a planned £12bn rise in national insurance, amid warnings over soaring costs for companies and households as the Russian invasion of Ukraine drives up inflation.
The manufacturing trade body Make UK, which represents 20,000 firms of all sizes across the country, said the tax hike planned for April should be pushed back until the UK economy is in a stronger position. It warned the government that pressing ahead would risk firms slamming the brakes on recruitment and putting the economic recovery from Covid at risk.
With concerns mounting over the fallout from Vladimir Putin ordering his troops into Ukraine last week, the business lobby group said now was not the time to add further self-imposed costs on companies.
“The proposed increase remains illogical and will be even more ill-timed given how circumstances have rapidly changed since it was announced,” said Stephen Phipson, the chief executive of Make UK.
“The cost burden on business is continuing to escalate and, while some of these increases are due to global events, government must avoid adding shooting business in the foot by an entirely self-imposed decision.”
According to a survey of almost 300 manufacturing firms by Make UK, as many as three in five said the tax rise would have a moderate or significant impact on their hiring intentions. Almost three-quarters said they would pass on, or would be very likely to pass on, the rise in their costs to customers in the form of higher prices for their products and services.
It comes as the fighting in Ukraine drives up global energy prices, and as the conflict and western economic sanctions unleashed in response lead to tensions over the supply of Russian gas to Europe. Following a sharp rise in wholesale gas markets last week, economists said UK inflation could rise from the current rate of 5.5% to peak above 8% within months – the highest level for three decades.
Boris Johnson had attempted to draw a line under demands to delay or scrap the planned tax rise, arguing in a joint letter with Sunak that the policy was the right way to deal with NHS Covid backlogs and reforms to social care.
With the prime minister criticised over the “partygate” affair, senior Conservatives had urged him to tear up the plan for a 1.25 percentage point increase in national insurance contributions for both workers and employers announced last September.
However, the tax-raising plan has led to broader unrest in company boardrooms, when taken together with other steps to raise the UK’s tax burden to the highest sustained levels in 70 years.
In an intervention ahead of Sunak’s spring economic forecast later this month, the Confederation of British Industry urged the chancellor to set out a range of tax cuts and spending commitments to offset the impact on firms.
The CBI said a permanent investment deduction was necessary to help companies boost the amount they spend on productivity-enhancing technologies, machinery and buildings by £40bn a year by 2026. It said firms should be offered a 100% tax deduction against such investments from April 2023, offsetting an increase in the headline rate of corporation tax from 19% to 25% in the same month.
Tony Danker, the director general of the CBI, said: “You’ve come out of the blocks with a pretty damaging measure, which is that increase in corporation tax. So I think it is incumbent upon government now to compensate for that.”
The CBI said firms needed measures to encourage them to spend, after a period of weak business investment since the Brexit vote and during the Covid-19 pandemic. The lobby group estimates that £100bn could be added to the Treasury’s coffers by 2030 if the UK bucks current predictions and achieves a more ambitious 2.5% average growth rate for GDP over the remainder of the decade.
“Faced with a record tax burden, a cost-of-living crisis, wage pressures and the end of the super-deduction, firms will be looking to the spring statement for a clear signal that the government’s ambition will be matched by action,” Danker added.
