UK Businesses Plan to Reduce Pay Awards Amid Tax Hikes and Economic Gloom
Surveys reveal widespread plans to cut wage growth as employers respond to higher payroll taxes and a challenging economic outlook.
A significant number of British businesses are preparing to reduce pay awards for employees in response to tax increases introduced by Finance Minister Rachel Reeves in her October budget, according to two surveys released on Monday.
The findings highlight ongoing economic pessimism among employers and potential challenges for the Bank of England as it prepares for its next interest rate decision.
Data provider Incomes Data Research (IDR) reported that sixty-nine percent of surveyed employers were either extremely or moderately likely to scale back wage increases to offset higher payroll taxes.
Of these, more than half indicated they were 'extremely likely' to reduce pay growth.
The survey included responses from one hundred sixty-eight employers, representing 1.2 million workers, gathered between November and December.
Additionally, one-third of the respondents said they were likely to consider redundancies, while forty-five percent planned to absorb the tax increase through reduced profits or other cost-saving measures.
The survey also showed that thirty-seven percent of businesses intend to offer pay raises of between two and three percent in 2024, while forty-three percent expect increases of between three and four percent.
Only fourteen percent forecast wage growth of four percent or higher, a factor likely to provide some reassurance to the Bank of England, which remains focused on managing inflation.
A separate report by the Confederation of British Industry (CBI) painted a similarly bleak picture, with businesses expressing continued pessimism about the economic outlook.
The CBI’s growth indicator, which measures expectations across sectors such as manufacturing, retail, and services, rose slightly to minus twenty-two in January from minus twenty-four in December, its lowest point in over two years.
The survey covered nine hundred ninety companies between December 19 and January 14.
Alpesh Paleja, interim chief economist at the CBI, noted that businesses remain concerned about declining activity, with many planning further price increases and job cuts.
This situation poses a challenging trade-off for policymakers attempting to balance inflation management with economic growth.
The Bank of England, which is set to announce its next interest rate decision on February 6, faces uncertainty over how businesses will respond to higher taxes.
The central bank is assessing whether employers will address the financial strain by cutting wages, reducing staff, absorbing costs, or raising prices.
Most investors and economists predict a quarter-point rate cut next week, though the outlook for the rest of the year remains unclear.
Meanwhile, Rachel Reeves has defended the tax increases, describing them as a one-time measure to stabilize public finances while funding essential services and investments.
She is expected to deliver a speech later this week outlining strategies to boost the country’s economic performance, which has been hampered by slow growth and persistent inflation pressures.
The findings highlight ongoing economic pessimism among employers and potential challenges for the Bank of England as it prepares for its next interest rate decision.
Data provider Incomes Data Research (IDR) reported that sixty-nine percent of surveyed employers were either extremely or moderately likely to scale back wage increases to offset higher payroll taxes.
Of these, more than half indicated they were 'extremely likely' to reduce pay growth.
The survey included responses from one hundred sixty-eight employers, representing 1.2 million workers, gathered between November and December.
Additionally, one-third of the respondents said they were likely to consider redundancies, while forty-five percent planned to absorb the tax increase through reduced profits or other cost-saving measures.
The survey also showed that thirty-seven percent of businesses intend to offer pay raises of between two and three percent in 2024, while forty-three percent expect increases of between three and four percent.
Only fourteen percent forecast wage growth of four percent or higher, a factor likely to provide some reassurance to the Bank of England, which remains focused on managing inflation.
A separate report by the Confederation of British Industry (CBI) painted a similarly bleak picture, with businesses expressing continued pessimism about the economic outlook.
The CBI’s growth indicator, which measures expectations across sectors such as manufacturing, retail, and services, rose slightly to minus twenty-two in January from minus twenty-four in December, its lowest point in over two years.
The survey covered nine hundred ninety companies between December 19 and January 14.
Alpesh Paleja, interim chief economist at the CBI, noted that businesses remain concerned about declining activity, with many planning further price increases and job cuts.
This situation poses a challenging trade-off for policymakers attempting to balance inflation management with economic growth.
The Bank of England, which is set to announce its next interest rate decision on February 6, faces uncertainty over how businesses will respond to higher taxes.
The central bank is assessing whether employers will address the financial strain by cutting wages, reducing staff, absorbing costs, or raising prices.
Most investors and economists predict a quarter-point rate cut next week, though the outlook for the rest of the year remains unclear.
Meanwhile, Rachel Reeves has defended the tax increases, describing them as a one-time measure to stabilize public finances while funding essential services and investments.
She is expected to deliver a speech later this week outlining strategies to boost the country’s economic performance, which has been hampered by slow growth and persistent inflation pressures.
