Top UK Business Leader Warns Rachel Reeves Not to Hike Corporate Taxes

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(Bloomberg) — Chancellor of the Exchequer Rachel Reeves should resist the temptation to raise levies on UK companies further because of the risk of strangling economic growth, one of the country’s biggest business lobbies said.

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“Our message to government is very clear: no more tax on business,” British Chambers of Commerce Director General Shevaun Haviland said in an interview with Bloomberg ahead of her industry group’s annual conference on Thursday. “More taxes will slow down the economy, slow down businesses, and that will be a vicious circle.”

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The warning from Haviland highlights the competing pressures Britain’s finance minister faces as she seeks to fix the UK’s creaking public services, revive the country’s flagging growth and keep the public finances in order. With a bitter internal row brewing over benefits cuts, Reeves faces pressure from within her own Labour Party party to use tax rises rather than spending cuts in the autumn to meet her self-imposed fiscal rules, including that day-to-day expenditure is covered by tax receipts.

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Business, for its part, bore the brunt of Reeves’ last budget, in which the chancellor raised taxes by £40 billion ($55 billion), including a £26 billion hike to the national insurance payroll tax levied on employers, which took effect in April. Haviland said the size and scale of that move had taken businesses by surprise and left them with less money to invest.

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On Thursday, the BCC chief will call on the government to tackle barriers holding back UK firms, including skills shortages and high operating costs. More corporate taxation “is not going to get the growth the government wants to see,” she said. “We need to lift the burden from businesses.”

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Reeves is further hamstrung by pre-election commitments not to raise taxes on working people, including income tax, value added tax and the national insurance component levied on employees. Those three revenue streams are the Treasury’s biggest earners, leaving her little scope to find money elsewhere — especially after hitting business with more taxes last year.

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In the aftermath of her budget, Reeves promised businesses that they could now be “confident” in the tax rates they faced, because “I’m not coming back with more borrowing or more taxes.” Since then, however, she’s watered down that pledge, repeatedly saying she wouldn’t need another budget on the “scale” of the last one. 

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That gives Reeves more wriggle room to raise taxes again — something she may need to do in her next budget. The chancellor met her main fiscal rule by just £9.9 billion at her spring statement, a margin threatened by higher borrowing costs and spending pressures such as the government’s U-turn on cuts to winter fuel payments for pensioners and the potential watering down of the £5 billion of welfare cuts unveiled in March amid the threat of a rebellion by Labour lawmakers next week.