UK Chancellor, Rachel Reeves, is facing pressure to provide a “clearer, more stable tax environment,” when she delivers her growth strategy next month. The Chancellor is once again in the spotlight after a damning report from finance bosses indicated the industry was prepped to support growth ambitions, but structural barriers were holding them back.
Top players in the financial services ecosystem – KPMG, UK Finance and PIMFA (Personal Investment Management & Financial Advice) – said “potential will remain untapped unless underlying structural challenges’ are addressed”. The report said reforms to tax policy posed a “valuable opportunity” to drive up greater confidence”.
Business confidence sank in the fall out of Reeves’ maiden Budget, where taxes were hiked £40bn. The Chancellor’s controversial change to employer’s national insurance came into effect last month, with rates for firms upped 1.2 per cent to 15 per cent.
Managing director of personal finance at UK Finance, Eric Lendeers, said: “Investors and firms need stability to make informed decisions and to invest for the future. Mixed signals on taxation only compound the problem.” He added it was crucial to avoid “knee-jerk reactions” on tax policy.
The Chancellor is facing mounting speculation of another tax hike after it was calculated half of her £9.9bn in fiscal headroom had been wiped out just 48 hours after the Spring Statement.
Chief executive at PIMFA, Liz Field, said: “Uncertainty surrounding non-dom tax status has driven more capital and talent overseas which impacts UK investment and competitiveness.” Field added: “Frequent shifts and speculations around issues like tax-free cash, pensions, and ISAs undermine confidence and disrupt financial planning for clients.” Reeves inaugural Financial Services Growth and Competitiveness Strategy is pencilled in for 15 July, where the industry will be anticipating the Chancellor’s plans to boost the economy.
Partner at KPMG UK, Daniel Barry, said: “As risk to the UK’s finance stability are rising, the government has a significant opportunity to instil greater confidence among sector leaders at a time of great uncertainty and geopolitical volatility.” The report from KPMG, UK Finance and PIMFA compiles views from chief executives and senior leaders across the private bank and wealth management industry, as well as financial advice and related services. The sector holds over £1.6 trillion in assets and bosses said reforms were needed to “unlock the full potential”.
Field said: “There’s a concern across our sector that without a more stable, proportionate and joined-up policy environment, we risk missing a vital opportunity to unlock investment, drive innovation, and promote greater financial resilience across society.”
A separate issue that is causing concern to firms in the UK is the Employment Rights Bill which is currently progressing through parliament and expected to become law in the coming months. Small business owners would continue hiring new staff despite fears around the government’s workers’ rights package if it contained a rebate on the overhaul’s new sick pay rules.
According to a poll by the Federation of Small Businesses (FSB), 35 per cent of entrepreneurs and small business owners believe that a rebate for their firms over sick pay would make them to employ people currently out of work. The government claims its Employment Rights Bill represents the biggest overhaul of workers’ rights in a generation. Other important changes within the package include outlawing ‘exploitative’ zero-hours contracts and so-called ‘fire and rehire’ practices.
Under the current package, bosses have to grant staff statutory sick pay from their first day of employment, removing the current waiting period of three days. But small businesses fear the sick pay reform will cost them millions and deter them from taking on new employees.
Of the 92 per cent of FSB members that have concerns about the workers’ rights bill, 74 per cent believe they will recruit fewer workers. Executive director of the FSB, Craig Beaumont, said the spending review was an opportunity for the Chancellor to incorporate the sick pay demands of small businesses.
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