UK businesses to cut pay awards amid tax hikes

A majority of British businesses plan to reduce staff pay awards following tax hikes announced in October’s budget, according to two surveys published on Monday.

Data provider Incomes Data Research (IDR) reported that 69 per cent of employers are likely to cut pay increases to offset the higher payroll taxes introduced by Finance Minister, Rachel Reeves. More than half of these businesses are “extremely likely” to slow pay growth.

The Confederation of British Industry’s (CBI) separate survey revealed continued pessimism among firms, with its January growth indicator rising only slightly to -22 from December’s -24.

IDR also found 37 per cent of employers expect pay rises between 2.0 per cent and 2.99 per cent this year, while 43 per cent foresee increases of 3.0 per cent to 3.99 per cent. Only 14 per cent anticipate rises above 4 per cent, potentially easing inflation concerns for the Bank of England (BoE).

The BoE, set to decide on interest rates on February 6, faces uncertainties over how businesses will respond to tax hikes, with IDR noting that one-third of employers are considering layoffs.

CBI Chief Economist Alpesh Paleja warned that further price hikes and staff cuts could deepen challenges for policymakers. Meanwhile, Reeves is expected to address her economic strategy in a speech later this week.

Attribution: Reuters

Subediting: M. S. Salama