London business leaders said firms in the capital are at risk of being “overwhelmed” as they are hit with higher interest rates, soaring energy bills and workforce shortages.
On Thursday the Bank of England raised interest rates to 1.25 per cent - its fifth monthly rate rise in a row - but warned that inflation could hit 11 per cent later this year. Inflation rose to a four decade high of 9 per cent in April.
The London Chamber of Commerce and Industry called on the Government on Friday to reverse the National Insurance rise of 1.25 percentage points and to take more action to protect businesses from rising inflation and taxes.
Richard Burge, Chief Executive of LCCI, said: “The Bank of England’s decision to raise interest rates to 1.25 per cent, will add to an already challenging environment for businesses.
“Higher taxes, and now higher borrowing costs, risk endangering the UK’s faltering post-COVID recovery.
“In this climate, we must see a reversal to National Insurance rises and ensure there is action in protecting businesses from the two-pronged threat of higher inflation and higher tax. Without clinical precision in policy by the government, this latest interest rate rise will heap further pressure on hard pressed small businesses who are the lifeblood of London’s economy.”
The UK’s tax burden is at its highest for decades following April’s rise in National Insurance with businesses facing a sharp rise in corporation tax - from 19 per cent to 25 per cent next year.
On Friday Business Minister Paul Scully appeared to leave the door open to tax cuts in the autumn - despite other senior members of Boris Johnson’s government hinting a day earlier that personal income taxes would not be reduced until inflation is brought under control.
Mr Scully, who is also Minister for London, said there wouldn’t be tax cuts now but that they could be dealt with by the Chancellor Rishi Sunak in his Autumn Budget.
“What I don’t want to do is write a budget months ahead of the budget,” he told Sky News. “Taxes are dealt with in the Budget in the Autumn .There won’t be tax cuts now because any taxes are dealt with in a Budget. There’s so much to go until we get to the Autumn and things can change in any number of ways.
“We are a low tax government, I would like to see tax cuts happen. That’s my general principle and the party’s general principle, is to have low taxes, to trust people to spend their own money the best way we can.
“But as I say, we’ve got to get the backlog dealt with in the NHS, we’ve got to keep our schools well funded. All of those, those things in the public finances. It’s a complex situation and having put all that money in, the Chancellor can look when it comes to the Budget and make his decision at that point.”
Following the Bank’s rate rise on Thursday Mr Sunak wrote to Governor Andrew Bailey to tell him that fiscal policy must remain “responsible” and not “exacerbate” inflation.
Mr Sunak wrote: “This is why, in responding to urgent cost of living pressures that people are facing, I announced a series of measures which are timely, targeted, and temporary to help households manage the squeeze on real incomes whilst not adding unnecessarily to inflation”.
Communities Secretary Mr Gove later said he agreed with Mr Sunak that tax cuts should be shelved until inflation is brought down. The Bank predicts it could be two years until inflation returns to its 2 per cent target.
Asked if reducing taxes would have to wait until 2024, Mr Gove told TalkTV: “The Chancellor has the right policy... He can’t spend all of the public money that many would wish to and which, in a perfect world, we’d like to”.
He added: “You’ve got to make sure that you balance the books at a government level”.
Earlier on Thursday, Mr Gove told The Times CEO Summit in London that the pressure on the public finances meant the Government was unable to provide the level of support to people that it would like.
“When you are squeezing inflation out of the system, you will rely on the Bank of England and the Government having the fiscal and the monetary policies which will inevitably mean we cannot do all the things that we would, in ideal circumstances, like to do in order to support people through a difficult period,” he said.
Mr Sunak announced an extra £15billion of support for struggling households last month, much of which is set to come in when energy bills rise again in October.
In a TV interview, the Chancellor pointed to the lifting of the threshold at which employees start to pay national insurance in a few weeks as he insisted the “direction of travel is to reduce people’s taxes”.
But he appeared to reject further short-term tax cuts, telling ITV News: “I will make sure that I handle our borrowing and debt responsibly so that we don’t make the situation worse and increase mortgage rates more than they otherwise are going to have to go up.”
The Chancellor added that people should be “reassured” that inflation will be tamed through “constrained borrowing and debt”, action by the Bank of England and measures such as improving energy supply.
“People should feel confident that we will get through this, we will get inflation down and strong growth will return,” he said.
But businesses say that while there has been more support for households, businesses need more help from the government.
Mr Burge added: “With the cost of doing business at an all-time high, businesses – especially in London – are at risk of being overwhelmed through a combination of spiralling energy prices, high rent and tax, crippling workforce shortages and supply chain issues.
“We understand that this move is designed to bring down inflation, however, it comes at a time where the Government are already squeezing businesses with corporation tax and National Insurance rises.”
