CBI: Roadmap needed as firms struggle amid rising wealth tax rumours
Publishing a long-term tax roadmap would address the “confidence shortfall” among UK firms, the Confederation for British Industry (CBI) has urged the government, amid swirling rumours of a wealth tax.
Businesses are facing “cost pressures” and “middling conditions” and in need of a “major boost to confidence”, the CBI has said, following hints from Sir Keir Starmer that a “painful” autumn Budget is in the works.
The Prime Minister warned the public yesterday to expect “short-term pain for the long-term good” and suggested that “things will get worse before they get better”.
In a move which ramped up speculation around a potential wealth tax or rising capital gains rates, Sir Keir told voters: “Those with the broadest shoulders should bear the heavier burden.”
The PM, who committed in Labour’s manifesto not to increase income tax, National Insurance or VAT, added: “That’s why we’re cracking down on non-doms.”
It comes as the business organisation revealed its latest service sector survey which found costs per employee had risen well above average while selling prices only rose “modestly”.
The quarterly review also forecast prices are set to rise “more slowly” in the next three months, with firms recording a further decline in profits set to accelerate until November.
Investment ‘softened’ in May – CBI
Some businesses and professional services firms cited “rising optimism”, versus a “sharp decline” in consumer services firms, according to the 236 companies surveyed.
Volumes were reportedly “broadly unchanged” in the quarter to August and are expected to grow at a robust pace in the months to November, the CBI said, while services headcounts were “broadly unchanged” up to August and are set to stay consistent up to November.
The CBI also found investment plans were “softened” compared to May, with firms expecting to cut capital expenditure on vehicles, plant and machinery, and land and buildings.
However, funding for training and IT is set to remain constant or modestly rise.
“Cost pressures are continuing to squeeze profitability among services firms,” the CBI’s interim deputy chief economist Alpesh Paleja said.
“With interest rates only just starting to come down, this remains a significant drag on investment plans.”
He added: “Coupled with middling business conditions, this does not paint a picture of a sector that is thriving. Services firms could do with a major boost to confidence.
“Delivering certainty about the tax and regulatory environment could really help to address that shortfall.
“By publishing a long-term UK business tax roadmap that delivers a simpler, more digitised and proportionate tax system – one with competitiveness at its heart – the government could take a major stride in delivering the confidence businesses and investors are looking for.”
Speaking at Labour’s business conference in February, now-Chancellor Rachel Reeves pledged “within its first six months, an incoming Labour government will publish a roadmap for business taxation, setting out our plans on business tax over the duration of the parliament”.
She also committed to capping the “headline rate of corporation tax at its current 25 per cent for the next parliament”, but vowed to “act” if “our competitiveness comes under threat”.
But speaking this morning, Conservative leadership candidate Robert Jenrick claimed despite Starmer’s assertions, his party had “left a good legacy to this Labour government”.
Jenrick argued that the Prime Minister and Chancellor “are pretending that the public finances are in a worse position so as to break the promises they made just seven weeks ago, to the British public and prepare the ground for raising taxes”.
He added: “Labour are making political choices, and I think these are selfish choices.”