UK Business Leaders Criticize Labour's Tax Hikes, Regulatory Burdens

Business leaders in the UK are expressing growing dissatisfaction with the Labour Party's policies, just a year after the party's landslide election victory. Initially, there was optimism and a strong relationship between the government and business leaders, but this has since soured due to tax increases, regulatory burdens, and a perceived lack of dialogue from the government.

Companies are now facing significant challenges, including job cuts, delayed investments, and even considerations to move their listings abroad. Bernard Fairman, executive chairman of Foresight Group, an infrastructure investment firm, stated, “I’m struggling to see what’s business-friendly so far.” The government is walking a fine line, trying to balance the needs of businesses with those of unions and its traditional left-wing base, while also appealing to Conservative supporters and voters who may be leaning towards the populist Reform UK party.

Recent market turmoil, following emotional appearances by Chancellor of the Exchequer Rachel Reeves and Prime Minister Keir Starmer, has exacerbated concerns about the government's direction. The government's decision to water down planned welfare reforms and the potential move of Britain’s biggest company to the US have further fueled these concerns.

The economic landscape was already fragile when Labour took office, and the situation has not improved significantly. A brief growth spurt at the start of the year was followed by a sharp economic contraction, driven by external factors such as US President Donald Trump’s tariffs and the UK government’s own tax hikes. This has added to the economic challenges facing the government.

Labour had promised not to touch income tax, value-added tax, or national insurance during the election campaign. However, shortly after taking office, Reeves declared that a £22 billion black hole in the country’s finances meant drastic measures were necessary. Businesses have borne the brunt of these measures, with higher taxes and increased minimum wages. Retailers such as J Sainsbury Plc and Tesco Plc have complained about the tax rise and announced job cuts.

The rise in National Insurance Contributions (NICs) has already cost the economy jobs and pushed up food prices as businesses pass on the increase to consumers. Bank of England Governor Andrew Bailey has noted the impact of these measures. However, with policymakers still concerned about price pressures, the central bank is expected to provide only limited relief on borrowing costs.

Last week’s U-turn on welfare reforms has left the government with an additional £5 billion to find. Cabinet minister Pat McFadden has stated that Labour would stick to its election tax pledge, despite the need for more savings. Julian Morse, CEO of investment bank Cavendish Plc, has warned that the government's inability to raise taxes earlier will cause greater pain when they eventually do so.

The abolition of a two-century-old tax break for non-domiciled residents has also had a significant impact on the business community. Business leaders have expressed frustration with the UK’s regulatory regime for medicines. AstraZeneca Plc, Britain’s largest listed company, abandoned plans to invest £450 million in a UK vaccine manufacturing plant following protracted wrangling with Labour over state funding.

Last week, it was reported that AstraZeneca’s CEO Pascal Soriot would like to move the drugmaker’s listing to the US. Other smaller companies such as Flutter Entertainment Plc and CRH Plc have already switched their primary listings to New York amid frustration with lower valuations in London. A visa clampdown announced in May will also have a significant impact on businesses that rely heavily on workers from abroad, particularly care-home operators.

For some CEOs, the lack of interaction with the government is a major concern. Since the initial breakfasts with business leaders, there has been little dialogue. Labour has been open to ideas but has used them to create policies without consulting businesses. One chief executive, who has acted as an advisor to the government, would grade the government’s performance as a “C.”

Despite these challenges, there are some signs of economic improvement. Britain’s private sector expanded at the fastest pace in nine months in June, and hiring intentions for the year ahead are at their strongest since October. The UK’s trade agreements with the US, India, and the European Union have further calmed anxieties. However, businesses are preparing for a fight if the government plans to lift taxes again.

The Confederation of British Industry’s chief executive, Rain Newton-Smith, noted that while the government has laid “solid foundations” for growth, the effects are being limited by the cost burden firms are facing. Companies have responded by cutting back on investment, hiring, and pay, making it vital to avoid further tax rises on business at the next budget.