A rise in payroll tax is undermining UK consumer and business confidence
UK consumer and business confidence is falling as the Labor budget tax hike raises concerns about hiring, rising costs, and prospects for economic growth.
UK consumers and businesses have grown increasingly pessimistic about the state of the economy following the Labor budget’s tax hike, which has fueled concerns about employment and rising costs.
The latest survey shows a drop in confidence among British households and the key services sector this month, undermining the government’s ambitions to permanently raise economic growth to the highest in the G7 over the next five years.
According to the British Retail Consortium (BRC), a survey conducted this month found that more households are worried about the economy than before the budget was announced. Uncertainty has led to households maintaining regular spending levels in November compared to October, and despite the approach of Christmas, there has been little improvement in their financial conditions after the budget.
In a separate survey of confidence among businesses in the services sector—which makes up about three-quarters of the economy—there was the biggest drop in confidence in two years in the three months to November, breaking a nine-month trend of improving sentiment.
The Confederation of British Industry (CBI), which carried out the survey, reported that service firms are facing higher wage costs, a situation that is likely to worsen after the government’s decision to increase employers’ national insurance contributions from April, which is expected to raise £16 billion. to £20 billion a year.
Alpesh Paleja, the CBI’s interim deputy economist, noted that the data did not paint a “pretty picture,” adding: “Distorted sentiment, weak hiring intentions, and intensifying cost pressures are all at least part of the answer to the coming employer boom.” national insurance contributions.”
Recent indicators of economic sentiment have weakened following the government’s budget of £40 billion in tax increases and warnings of “tough decisions” for public finances. Official data showed a 0.7 percent drop in retail sales in October, ahead of the budget.
The BRC survey revealed a two-point drop in household sentiment about the state of the economy, down to 19. Consumers reported only a one-point improvement in their financial situation between October and November, while overall savings and spending goals remained unchanged. .
Helen Dickinson, chief executive of the BRC, said the retail industry was facing a £7 billion increase in costs due to the rise in national insurance, leaving the sector with “little choice but to raise prices or reduce investment in operations and retail.”
“To reduce this, the government must ensure that the changes in the business tax system, scheduled for 2026, bring about a noticeable reduction in the debts of all traders,” he said.
An increase in national insurance may derail the continued recovery in employment reported in the private sector this year, according to the Recruitment and Employment Association (REC). Its latest survey showed an improvement in the economy in the three months to October and an increase in employer confidence in hiring decisions last month.
“The scale of changes to employers’ national insurance—in particular, the decision to increase tax significantly on low income earners—will be a drag on hiring confidence from here on out,” said Neil Carberry, REC’s chief executive. “The Chancellor has rated books behind businesses across the country; now he needs support to grow.”
