Business leaders have warned chancellor Rachel Reeves at a private meeting that the economic environment is “extremely challenging”, with companies facing major uncertainty due to her tax-raising Budget and the government’s planned employment reforms.
Reeves on Wednesday attended a meeting of the British Chambers of Commerce “business council”, a group of senior corporate figures who gather every quarter to discuss the economic landscape.
Some 19 executives came to the gathering in south London from companies including SSE, NatWest, Heathrow, Drax, DP World, BP and Aviva.
In a straw poll of attendees around the table before Reeves’ arrival, only three said they expected the economic situation to improve in a year’s time.
She used her opening remarks to acknowledge the challenges she had to address in October’s Budget and insisted it would not be repeated in the future, according to people with knowledge of the meeting.
But executives told Reeves that her increase in employers’ national insurance contributions would have a significant impact on both investment and recruitment.
They also highlighted the government’s plans to boost workers’ rights and looming changes that will mean companies pay an extra £2.7bn in business rates in two years’ time.
One business leader said they had told Reeves: “The headwinds from national insurance contributions has caused issues — businesses have less appetite to recruit. The appetite to invest is lower.”
Another reportedly said: “Businesses are pulling back on capital investment.”
Reeves gave a robust defence of her £25bn increase in employers’ national insurance contributions, saying that the government needed to restore fiscal stability.
Martha Lane Fox, president of the British Chambers of Commerce, said after the meeting there was “no hiding the reality” that the Budget had been tough for business.
“Millions of firms are now facing a raft of increased costs in the coming months,” she added. “Higher bills will impact on investment and recruitment. Our latest forecast also suggests the ripples will be felt across the wider economy.”
Lane Fox said the rising costs meant it was more vital than ever that the government delivered on its promise to create long-term frameworks for economic stability.
Last month Rupert Soames, chair of the CBI business lobby group, accused the government of treating employers as a “cash cow” in a Budget that most viewed as “a bit shit”.
Some ministers have become concerned about the impact of the rise in national insurance contributions — not just on companies but also various public services.
Hundreds of charities have signed a letter organised by the National Council for Voluntary Organisations warning that the rise will force them to cut staff or limit services.
There are also concerns inside government about the impact on nurseries, which have warned that parents could face higher fees or even some closures against the backdrop of higher national insurance contributions and a more generous minimum wage.
Labour has repeatedly said it found a £22bn “black hole” in the public finances after winning the general election in July, necessitating tough decisions in the Budget.
After the meeting Reeves said the government would bring investment and reforms to kick-start economic growth: “My Budget was one to wipe the slate clean in the face of an inherited £22bn black hole and bring businesses the stability they desperately need. It involved difficult decisions, but has laid the foundations for growth.”
