Rachel Reeves has been given a stark warning from business to avoid “death by a thousand taxes” in her long-awaited Budget this week.
The CBI’s director general, Rain Newton-Smith, will tell the chancellor on Monday that the UK risks being stuck in “Groundhog Day”, where politics trumps growth and no bold decisions are taken.
In a speech to hundreds of business leaders at the QEII centre in London, the government will be urged to “change course... and work with business to fix what’s broken”.
“We face a fork in the road,” Ms Newton-Smith is expected to say. “Where our biggest fear is, if we get the wrong choices on Wednesday... more short-term tinkering; more bold choices not made; more politics over growth … then we risk getting locked in a stop-start economy.
“Where large tax rises rear their head every year or even every autumn and spring. That is not the road to growth. That is a cycle of doubt and uncertainty. That is the road to decline.”
The attack is a swipe at the U-turn over raising income tax, which was cancelled at the last minute, with Ms Reeves now expected to go for a collection of smaller wealth taxes on capital gains, property, gambling, the banking sector and other areas.
The comments come as ministers, MPs and other senior Labour figures told The Independent the Budget is aimed at “appeasing” angry backbenchers to avoid a leadership coup against Sir Keir Starmer. A poll of Labour members over the weekend suggested Sir Keir would lose a future leadership contest to any of four potential rivals.
In other key developments ahead of the crunch Budget:
- The government has confirmed pensioners will get an inflation-busting rise with the triple lock.
- The chancellor is also now understood to be ready to find £3.5bn a year to scrap the child benefit cap.
- New research has suggested that 1.3 million more people will be dragged into paying the higher 40p rate of income tax if she confirms a further freeze in the thresholds on Wednesday.
- The Treasury believes it can make an additional £1.2bn of savings through efforts to identify incorrect universal credit payments to 2031.
- Transport secretary Heidi Alexander has heightened concerns that there will be the first fuel duty rise in 15 years and drivers of electric vehicles will be forced to pay a new tax.
The CBI attack on Ms Reeves was echoed by other experts.
Former Bank of England chief economist Andy Haldane said the "fiscal fandango" of the past months had caused “paralysis” among businesses and consumers.
“We need decisive action that puts to bed and beyond reproach any notion of further tax rises,” he said.
Former Institute for Fiscal Studies (IFS) director Paul Johnson said that the Budget trails, U-turns and speculation was “genuinely damaging”.
“The Bank of England, in its latest report, the very first thing it said about the reasons for slow growth over the last few months is speculation about the Budget,” he added.
Former chancellor Lord Clarke told Times Radio if the government gets the Budget wrong, the country runs the risk of “a serious financial crisis” and that raising income tax was “the best choice”.
But Unite the Union general secretary Sharon Graham said she did not believe Ms Reeves would survive as chancellor and demanded “a real Labour Budget”.
In her speech, Ms Newton-Smith will underline the anger businesses feel about the employment rights legislation currently going through parliament. She will also make it clear that Ms Reeves and Sir Keir need to find the will to take on their own backbenchers to deliver cuts to welfare and reconsider the pension triple lock.
“Ahead of the Budget it feels, for too many of you, like we are off-track,” she will say. “A year on from a Budget that turned to business to plug a hole, loading on £24bn per year in extra costs, pushing the tax burden to a 25-year high, with two-thirds of those taxes hitting business before you’ve even made a profit.
“One year later, here we are again. A new fiscal gap, billions of pounds wide. More rumours, more U-turns, raising uncertainty. Business holding its breath again. Investment paused, projects on hold again. It feels less like we’re on the move, and more like we’re stuck in Groundhog Day.”
Setting a challenge to government, Ms Newton-Smith will say: “Be it welfare, be it pension increases – show the markets you mean business. All short-term politics leads to is long-term decline… and this country cannot afford another decade of stagnation.
“That means making hard choices for growth now – before they get harder. It means one or two broad tax rises, rather than death by a thousand taxes.”
Ms Reeves’s Budget comes against a background of pressure from the unions, who are still Labour’s biggest donors, with the TUC issuing a set of demands on the cost of living ahead of the announcement on Wednesday.
The TUC is calling for the chancellor to make affordability the top priority by bringing down energy bills, scrapping the two-child benefit cap and taking action to make work pay after new analysis shows that people are just £12 a week better off since 2008 because of a lack of wage and economic growth.
TUC general secretary Paul Nowak said: “This Budget must be a living standards Budget. Households up and down the country are still suffering a painful Tory pay hangover – leaving this Labour government with lots of ground to make up.
“That’s why Wednesday is a crucial moment to show ministers are on the side of working people by making affordability a top priority.”
Transport secretary Heidi Alexander, asked on the BBC’s Sunday With Laura Kuenssberg programme whether speculation about tax rises has damaged the economy, said: “The review that the Office for Budget Responsibility have done about the productivity forecasts has meant that this whole process has really taken place on shifting sands to start off with, and we've got a very challenging global economic environment.”
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