Budget will ‘force firms to cut recruitment and curb pay rises’

Two thirds of business leaders believe the budget will hinder their growth ambitions by forcing them to cut pay rises, curb recruitment and reduce investment.
The snap poll of more than 700 bosses by the Institute of Directors also showed that business confidence, which was already at its lowest since December 2022 in the run-up to the budget, has fallen further since the chancellor’s speech.
“By imposing significant new tax burdens on business, the government has taken a major risk with the economic recovery,” Roger Barker, director of policy at the IoD, said.
The chancellor outlined a £40 billion package of tax increases, most of which will be shouldered by businesses through an increase in employers’ national insurance contributions.
UK Hospitality, the industry body, has calculated that the annual cost of hiring a full-time worker on the national living wage will rise by £2,526 from 2025.
Neville Prior, chairman of Cornelius Group, a speciality chemicals manufacturer based in Hertfordshire which employs 100 or so people, said the extra staff costs would “certainly have an effect” on next year’s plans.
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“It’s an extra cost into the business, meaning there’ll be less money to invest into things that are about growing the business. When it comes to salary reviews at the beginning of next year, we will probably give 1 per cent less than we might otherwise have done and where we don’t absolutely need to hire, we won’t.”
Paul Falvey, a tax partner at BDO, said the retail, leisure, hospitality and healthcare sectors, which rely on lower-paid staff, look most at risk. For some businesses in those industries “already in financial distress, this change may be the straw that breaks the camel’s back”, he said.
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Steve Rigby, co-chief executive of Rigby Group, an IT services group based in Stratford-upon-Avon that employs 4,000 people, expects businesses will have to accept reduced profitability, but thinks many will put up their prices to try to mitigate some of the financial impact.
“[The rise in staff costs] is unfortunately going to mean that prices will have to rise,” he said. “There’s no way that businesses such as ours and others can absorb all of that change.”
Prior also said Cornelius was probably going to “put up prices a bit further than we might have done”. If other businesses followed suit, he acknowledged that risks “fuelling inflation”, which would ultimately affect consumers.
Bruce Cartwright, chief executive of the Institute of Chartered Accountants of Scotland, said the “knock-on effects” of the budget, such as less hiring, lower pay rises and reduced employee benefits, “will directly impact working people’s wealth while stifling business growth”.
If wage growth does slow next year, Chris Eldridge, the UK, Ireland and North America chief executive at Robert Walters, the recruiter, thinks it may delay the return to the office as companies eye up cheaper, so-called “soft benefits” over more expensive pay rises.
“We’d anticipated a far stronger focus on the return to the office in 2025; we’ve seen several companies both here and in the US taking a far harder line [on in-office working],” he said. “It may be that, as a result of [the tax increases], companies are less stringent and continue to offer a level of flexibility as a retention tool if salary increases aren’t going to be on the agenda any more.”