Budget policies coming home to roost
With each passing day, the government’s insistence that economic growth is its “number one priority” sounds more and more offensive. Just a few days ago, the Business Secretary, Jonathan Reynolds, said he believes that “good policy, good strategies, and good government working hand-in-hand with the private sector, can make a difference.” This may be true, but it’s also the case that bad policy, poor strategies and muddled government leads to business confidence crashing to the lowest recorded level in a decade.
The Chartered Institute of Personnel and Development (CIPD) spoke to 2,000 firms and painted a miserable picture for the start of this year, with just over a third of employers planning to reduce headcount over the coming months either through redundancies or by pulling the plug on planned recruitment. North of 40 per cent of firms said they will raise prices, a figure rising to nearly 70 per cent in the retail sector. The CIPD said “these are the most significant downward changes in employer sentiment we’ve seen in the last ten years, outside of the pandemic.”
Also released at the start of this week, the latest Federation of Small Businesses confidence survey made for grim reading, with economic conditions and the burden of taxation cited as the main barriers to growth among their members, with sectors including hospitality, retail and construction offering the gloomiest outlook. None of this can be dismissed as the result of geopolitics or trade wars – those shocks loom on the horizon – instead, it’s domestic UK policy and the Chancellor’s own choices that are having such a devastating effect.
The National Insurance rise and higher labour costs have had an entirely predictable result and the impending imposition of burdensome new employment regulation adds insult to injury. Whitehall’s own impact assessment of the Employment Rights Bill warned of a £5bn cost to employers yet they’re steaming ahead with it anyway; how’s that for good government, Mr Reynolds?
The latest employment data will be released this morning, with the more optimistic analysts expecting evidence of a stagnant labour market. Meanwhile, we inch ever closer to the day when Rachel Reeves has to stand up and tell everyone quite how bad the OBR thinks things are going to get, and how she intends to react. Will she cut spending or go looking for more tax revenue?
The big fear is that her answer will be “both.”