Budget: Tax moves could 'lose firms and kill morale'

The Government’s headline tax moves risk “killing employee morale” and pushing more firms out of the UK.

That was the stark warning from business leaders following Chancellor Rachel Reeves’ Autumn Budget.

The flagship fiscal blueprint included commitments to freeze national insurance and income tax thresholds for an extra three years, and introduce a £2000 cap on pension salary sacrifice schemes.

The Chancellor says the moves will help “strengthen Britain’s economic foundations and set the course for a secure future for the country”.

However, commercial sector bosses argue the measures carry great counterproductive risk, with staff and their employers facing costly futures, which could see companies decamp to foreign shores.

Alex Fenton, group chief executive at London-based recruitment firm The Legends Agency, said: “Raising the extension of the tax threshold freeze hits UK employees' take-home pay, which kills morale and triggers demands for higher salaries.

“That’s another cost spiral making UK operations unaffordable compared to offshore alternatives where tax burdens don't erode wages and destroy motivation in the same way. 

“The Chancellor isn't raising revenue – she’s making the case for offshoring irresistible.”

Nikki Lidster, head of SME at insurer Zurich, said proposed pension changes leave small businesses facing a “challenging time”.

She said: “While the announcement will land in 2029, the prospect of paying national insurance on employer pension contributions for the country's SMEs will force some businesses to look at how they can improve efficiencies and costs. 

“The increases announced in the 2024 budget, mounting supply chain costs and ongoing cost of living increases, continue to weigh heavily on consumer confidence.”

Charlene Young, senior pensions and savings expert at investment platform AJ Bell, added: “The move is expected to raise £4.7 billion in 2029/2030, which neatly avoids Labour breaking its manifesto pledge not to raise taxes on working people. 

“Nevertheless, many working people will see less in their pay packets, with the biggest impact clustering at the £45,000 to £50,000 band.

“Employers using the schemes will be forced to foot a second consecutive tax-raising budget.”

And Stephen Patterson, chief executive of NE1 Ltd, which represents the interests of 1300 businesses in Newcastle city centre, warned the moves face damaging the retail and hospitality sector.

He added: “With no tax cuts for working people, and a freeze on income tax thresholds for the next three years, there will be less disposable income and salary to spend.  

“This doesn’t bode well for the towns and city centres still reeling from last year’s budget, and puts extra pressure on sectors like retail and hospitality, which are already struggling under significant pressure.”

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