CBI Chief Economist Talks Job Cut Expectations

Published Nov 25, 2024, 8:11 AM

Firms across Britain are "in damage control" with nearly half planning to cut jobs after the Labour government's tax-rising budget, according to the boss of the country's most influential business lobby group. Around six in 10 businesses told the the Confederation of British Industry that the budget would not make the UK more attractive for investment, a key aim of the Labour government as it tries to boost growth. CBI Chief Economist Louise Hellem joined Bloomberg Radio's Stephen Carroll and Caroline Hepker to discuss business concerns. 

The UK's most influential business library group, the CBI says nearly half of British businesses are planning to cut jobs after last month's budgets. We saw the payroll taxes paid by employers increase. The Confederation of British Industry's annual conference begins today and we've got the CBI's chief economist Louise Hallam with us in studio. Morning to you, Louise, So you say that firms are in damage control well after the budget. What does that look like?

So?

I think, as you say, we ran a survey of businesses after the budget and half of those came back and told us that they will have to think about perhaps restructuring and cutting jobs within their workforce. Sixty percent said that those who were planning to high will now have to cut back on those decisions, and fifty percent said that they need to relook at capital investment plans as well. So I think whilst in general we were hoping that the economy would start to pick up a bit more this year, I think the budget has really give businesses pause for thought.

So the CBI was taken by surprise by this.

Well, I think we all knew that there were going to be measures around national insurance in the budget, but I think that we have been quite surprised by the size of those changes and actually by the way that they have been done as well. So that reduction in the threshold when you start paying national insurance contributions was very large and also really impacts those businesses who do have very large workforces, and particularly for those who hire people at the lower end of the earnings distribution, which obviously combined with the national living wage increases as well, means you've got a lot of factors combining to make sure it is actually going to be harder to invest to hire people in the UK.

That your organization would have had a lot of contact with Rachel Reeves and the Treasury running up to the budget as well. Essentially, I mean, the Labour put so much effort into paying themselves as the Party of Business before the election. Was it that they just didn't tell you what they were going to do or that they've changed their position.

On the matter.

So I mean, I think when we obviously do have a lot of engagement with the Treasury, as you said, but obviously there are certain sensitivity around tax changers, so like I say, I think we knew, as it was widely trilled there we'd be these measures around national insurance. So you know, we were very much telling them around the circumstances for business at the moment, and particularly where actually, you know, many businesses have been hit by a lot of costs over the last few years with things like COVID, the energy crisis, etc. The ability to bear some of these additional costs is lower than it might otherwise have been. And the other thing that we were doing is talking to them about you know, if there are measures like this you might need to take, you need to think about offsetting measures as well. So for example, they've talked about reforming the apprenticeship levy, but we're not really seeing reform on that as quickly as we'd like to see. We know that inactivity is a big problem for businesses, but again there was little in the budget to help businesses to support those in poor health within their workforces. So I think that there is a lot of work that the Chancellor and the Treasury could have done to just ease some of this pain for businesses. Unfortunately, you know, we've not seen as much as that as we'd like to have seen.

It sounds like the cbr's view is that the Labor government made the wrong decisions in the budget, certainly the wrong decisions for business. You've placed a lot of importance on the government's promised industrial strategy to deliver higher sustainable growth, but in the budget that doesn't seem to have delivered for business.

So I think there's no way to escape that for us. We see the budget as being very difficult for business, but I think you're right, and what we are trying to do in those conversations with the government is to look at all the measures that they are proposing to do and make sure that that collectively does add up to a stronger plan for growth. So the industrial strategy, as you mentioned, will be incredibly important for that.

What is going to be in the industrial strategy. Everybody understands that there has not been enough economic growth, but I have not heard anybody come up with a cogent solution of betting on particular sectors, on doing one, two or three things that would actually deliver sustainable economic growth to the UK. There were some hints in Mansion House about rolling back on a bit of regulation. What is it that's meant to be in the industrial strategy that will deliver growth for Britain.

So it's obviously out for consultation at the moment and will be launched in the spring. But what we're feeding into it is, as well as those kind of eight sectors as you've alluded to that they've highlighted, they'll focus on we do need to make sure that we're not forgetting the kind of everyday economy and that so it's these points that we've been talking about and making sure that you actually have a competitive tax regime in the UK. Regulation across the board is thinking about how can we be more outcomes based to that, how can we kind of cut and make a regulation more efficient in places They've obviously made some really important moves towards planning reform, but you know that is an area where we still need to see significant progress and is a real barrier to businesses when they are thinking about expansion, and particularly actually when you're thinking about green connectivity, for example, on firms trying to move forward on their net zero journey.

The pain that's evidenced in your survey that businesses are feeling today is that something that you feel that you have any optimism could be eased as growth returns to the economy, does the economic picture look like it might actually change that sentiment in the kind of short to medium term.

So I think that what we need to see, as I said, is we need to see some of those kind of measures to help businesses, particularly if they are thinking about perhaps increasing the productivity in their workforce. So I talked about skills and the apprenticeship levy, but actually things like tech adoption and taking on AI you know, will be incredibly important for businesses to try and absorb some of these costs. Businesses, you know, are very spectrums along their journey. There's lots of businesses that I speak to that are leading the charge on that, but actually for many, you know, they don't perhaps know where to start. And so actually think, you where can the government come in with kind of best practice advice and try and help businesses at all ends, but particularly in that kind of more medium and smaller end of the economy as well.

In terms of the certainty picture, one of the big factors was the decline in business and consumer sentiment, which was really surprising. After the election, there had been a lot of hope that a new government would bring more long term stability just by the fact of being elected for five years and that that would therefore you provide a bedrock for businesses and consumers. But in fact, sentiment surveys plunged after the election. Was that a shock to you? Do businesses feel like they have certainty now?

So I think that we definitely did see that in a lot of our conversations, particularly overthrow the summer going in the autumn, and we're now seeing that reflected in some of the ecademic data that we're having coming through. I think that, you know, again, when I spook to the Chance ahead of the budget, she was talking a lot about let's get the bad news out, let's draw the line in the sand, and then move on for growth. I mean, I think if the budget, you know, is all of the bad news, then hopefully we can be more optimistic going forward. And like I said, I think there's lots of elements that we do want to work really constructively with government on. But I think that obviously, you know, the measures in the budget were so large that you know, they have, as we said, really impacted that business confidence and so I think that that does make that job of increasing growth in the UK economy that much harder.

How worried are you remembers about what policies could be implemented by the Trump administration in the US, potentially tariffs.

For example, So I think tariffs is obviously a big area for concern at the moment. So yeah, we're talking to members at the moment to understand some of that sentiment. I think obviously it's too early to tell exactly how large some of those tariffs could be and across witch sectors, and obviously there is a bit of a question as to how much the UK might be affected versus particularly China and the US. So that's something we're definitely keeping a watch on and is a concern for many members. I think. One of the other areas with the Trump administration is obviously, you know, they might cut back on some of their defense spending, which might put more pressure on the UK and the EU. Again talking about some of the factors that the government is going to have to deal with over the next couple of months in the spending review. Again, that's got a dynamic there which you know we'll be watching very closely as well.

Okay, one of your colleagues at the CBI, after the third quarter GDP data out of the UK, which showed growth stalling, basically talked about uncertainty. What blamed uncertainty ahead of the budget for that slowdown in an economic growth and also talked about downside risks to the outlook have increased.

What is that?

Why is that that the downside risks now to growth going forwards have actually increased as far as the CBS concerned.

So I think, like we say, that is very much around confidence and particularly around business and consumer sentiments. So I think businesses, like we say, are having to pull back investment, and that's one because of the cost pressures, but also because they can see demand has not quite picked up in the economy as we'd like it to have done. So we are seeing wage growth strengthen, for example, and obviously we've now seen those very high inflation rates come down, which is really positive, but consumers aren't quite getting out and spending as much as we'd have liked to have seen. So we're hoping, obviously for many businesses in this pre Christmas period that that will be more positive. But at the moment, again that hasn't given business to the confidence to invest on the back of that demand.

Okay, Louise, thank you very much for joining us. Louise Hallum, the CBI's chief economist, joining us in studio ahead of the start of their annual conference which begins a little bit later this morning as well. So very interesting to see what comes out of those conversations. Is that survey set up it up with showing that nearly half of British firms are planning to cut jobs after the tax changes in the budget.

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