British Businesses Set to Cut Pay Awards Amid Tax Hikes and Economic Pessimism

A majority of British businesses are planning to reduce staff pay awards in response to upcoming payroll tax increases, according to surveys published on Monday. Incomes Data Research (IDR) revealed that 69% of employers surveyed were moderately or extremely likely to slow pay rises to offset the tax hike announced by Finance Minister Rachel Reeves in her October budget. Over half of respondents said they were “extremely likely” to scale back pay increases, with one-third also considering redundancies. The survey, covering 168 employers and 1.2 million workers, found that 43% expect pay rises between 3.0% and 3.99%, while only 14% anticipate increases of 4% or more.

The Confederation of British Industry (CBI) added to the bleak outlook, reporting only a slight improvement in business sentiment for the next three months. The CBI’s growth indicator rose marginally to -22 in January from a two-year low of -24 in December, as businesses across sectors, including manufacturing, services, and retail, remained pessimistic. Alpesh Paleja, the CBI’s interim chief economist, warned that plans to cut staff and raise prices could exacerbate challenges for policymakers trying to balance growth and inflation control.

These findings come as the Bank of England prepares to announce its interest rate decision on February 6. Most economists expect a quarter-point rate cut, though the long-term trajectory remains uncertain. Meanwhile, Reeves has defended her tax increases as a one-off measure to stabilize public finances, ahead of an upcoming speech outlining her strategy to accelerate Britain’s sluggish economic growth.

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