Business taxes at a 'tipping point', CBI warns as bill hits £345bn

Britain's biggest business lobby group has issued a stark warning that the tax burden on companies has reached a tipping point, arguing that firms are being squeezed so hard they can no longer fund the investment and hiring the economy needs to grow.

The CBI said the total tax contribution from business has climbed to a record £345bn, with employer National Insurance contributions now the single largest component at £123.1bn, up more than 27% on the previous year. Corporation tax made up a further £103.1bn.

The figures, the group argued, expose a paradox at the heart of economic policy: ministers want businesses to lead a revival in growth and productivity, yet are leaning on those same businesses for an ever-larger share of the public finances. Something, the CBI suggested, has to give.

You cannot tax your way to growth

Chief executive Rain Newton-Smith used the figures to press ministers to ease the pressure, warning that rising wage, energy and finance costs were compounding the strain. She cautioned that the country risked a summer of stagnation if the cost of doing business was left unchecked.

“You cannot fix the cost of living without fixing the cost of doing business. And the cost of doing business is reaching a tipping point.”

— Rain Newton-Smith, chief executive of the CBI

The CBI's central contention is that tax is not levied in a vacuum. Every pound taken in employer National Insurance or corporation tax, it argues, is a pound that cannot be reinvested in machinery, training, research or new jobs. Over time, that lost investment compounds into weaker productivity and slower wage growth.

Where the burden falls

Employer National Insurance has become the focal point of business frustration, having risen sharply following changes introduced at last year's Budget. Because it is a tax on the act of employing people, critics argue it directly discourages hiring and weighs most heavily on labour-intensive sectors such as retail, hospitality and care.

The CBI broke down the record contribution to illustrate where the pressure is concentrated. Among the largest elements were:

• Employer National Insurance contributions of £123.1bn, up more than 27% year on year
• Corporation tax of £103.1bn, reflecting both higher rates and nominal profit growth
• Business rates, irrecoverable VAT and a range of environmental and sector-specific levies
• New and expanded charges such as packaging and waste levies affecting consumer-facing firms

Taken together, the group said, these costs leave the UK looking less competitive than rival economies at a moment when international investors have plenty of choice about where to put their money.

Pressure on investment and jobs

The intervention reflects growing frustration in boardrooms following last year's increases to employer National Insurance and the National Living Wage. The CBI argued the combined effect had left firms less profitable than at any point since the 2008 financial crisis, reducing the cash available to invest, recruit or extend credit to customers.

“When margins are this thin, the first things to be cut are hiring plans and capital spending, the very things that drive future growth.”

— A business economist

Supporters of the current settlement counter that public services require sustainable funding, and that business has historically contributed a smaller share of the tax take than personal income tax and VAT. The debate, in essence, is about where the balance should sit between fiscal repair and the conditions for private-sector growth.

Background

Business taxation has climbed up the political agenda since the increases to employer National Insurance announced at last year's Budget, which were designed to raise substantial revenue for public services. Combined with a higher National Living Wage, the measures added significantly to payroll costs at a time when firms were already grappling with elevated energy prices and borrowing costs.

Successive governments have wrestled with how to fund spending commitments without choking off enterprise. The CBI's annual assessment of the total tax contribution is intended to capture not just headline taxes but the full range of charges businesses face, providing ammunition for its lobbying ahead of fiscal events.

What happens next

The CBI is expected to press its case in the run-up to the autumn Budget, urging the Treasury to provide certainty on tax and to prioritise measures that encourage investment. Ministers, constrained by tight public finances, face a difficult balancing act. How they respond will help determine whether business confidence recovers or whether the warnings of a stagnant summer prove well founded.