Business versus the Budget: How a ‘dismal’ fiscal picture could disrupt Labour’s Party conference

As business chiefs look forward to the Labour Party conference and the ensuing Budget, Maurício Alencar explores how a difficult fiscal backdrop could disrupt meetings and undermine high expectations. In the months leading up to the Budget, hundreds of notes fly through the Treasury’s letterbox. Emails ping on officials’ phones.  Lobbyists for academics, retailers, councillors, farmers, horse racers and even Britain’s canals send their ambitious – if unrealistic – suggestions to the Chancellor.  Some submissions can influence the government more than others. Industry groups such as the Confederation of British Industry (CBI) attempt to unite the private sector’s calls. Some ideas, including those of the former Labour donor Dale Vince, get more of a hearing given impacts on public opinion and alignment with political ideologies. The most powerful and important lobbyists tend to get sit-downs — or in business lingo, “round tables” — with top Cabinet ministers.  Demands widely feature calls for tax cuts, regulatory tweaks or extra funding that supports one particular lobby group. They rarely feature caveats, trade-offs or admissions stating that proposals are difficult. This approach to Budget requests greatly frustrates Treasury officials. “Ah, cakeism! It’s our job to defeat that,” one person on the Treasury’s payroll recently joked.  Hopeful lobbyists are likely to suffer from a brutal reckoning at next week’s Labour conference. Clouding over demands for tax cuts or better funding is a difficult fiscal picture for the Chancellor – one that almost certainly requires tax hikes and funding cuts. Analysts at Capital Economics described the state of the public finances last week as “dismal”.  Some letters have not even asked the Chancellor for much – a group of City investors urged him to do “do no harm”. Others contain calculations that the Treasury may disagree with yet be unable to explain openly during a period of intense sensitivity to speculation. For instance, while some academics at a think tank for taxes suggest that a capital gains tax hike could raise about £20bn by 2030, economists at opposing institutions believe it would lead to a fall in government receipts due to changed investment behaviours. And even more remarkably, industry representatives have taken the extraordinary action to raise concern about the state of public expenditure. The British Chambers of Commerce (BCC) called for the triple lock pension, which allows the state pension to far outpace workers’ wage growth over several years, to go. Accountants want the government to be clearer about its fiscal rules. Everyone has a view on economic policy these days. Labour’s problems become businesses’ too The impact that troubled public finances are having on borrowing costs for private sector firms is difficult to overlook. Higher market interest rates are helping to subdue demand across the UK economy, Bank of England officials agreed in mid-September, which could weaken activity. Fiscal consolidation under current government plans comes mostly at the back-end of the three-year forecast; calls from the IMF and OECD for an immediate tightening in fiscal policy, plus Andy Burnham’s fear that Britain is “over exposed” to bond markets, have credit.  Despite alarm bells ringing, evidence from recent budgets suggests that Healey may struggle to tighten borrowing even if his fiscal headroom has been slashed from £23.6bn to below £10bn.  Even as business chiefs call for radical tax cuts, those attending Labour’s conference are playing up to Burnham’s interests. His pledge to get more young people out of the benefits system and into employment has been capitalised on by firms in Budget submissions. They are eagerly awaiting the completion of the Alan Milburn review into Neets, or under-25-year-olds out of employment, education or training.  The likes of the BCC and British Retail Consortium want Healey to take radical steps to partially undo the business tax raid announced under Rachel Reeves. They argue, with good reason, that a cut is essential to lowering labour costs and encouraging firms to take risks by hiring more inexperienced trainees.  The CBI also offered the new Chancellor a list of options for reducing employers’ national insurance contributions. Reducing the headline rate of tax by one percentage point could cost just under £10bn yet raising the salary threshold from £5,000 would cost around £3.9bn.  Income from national insurance contributions jumped by £33bn But the estimated £25bn tax assault on businesses announced in Reeves’ first budget has – for now – delivered the cash gains the Treasury was after. Between the financial years 2024-25 and 2025-26, income from national insurance contributions jumped by £33bn. Receipts from national insurance are projected to rise to £245.8bn by 2031, according to Office for Budget Responsibility estimates. Employers’ national insurance contributions since April 2025 have also jumped relative to previous income.  Businesses have the OBR, the independent fiscal watchdog assessing the government’s policies, to blame for underestimating the full effect tax hikes would have on unemployment. Economists predicted the joblessness rate would peak at 4.3 per cent before falling back to four per cent in its fiscal report after the Budget in 2024. The unemployment rate is now at 4.9 per cent. That 0.9 percentage point difference is equivalent to about 320,000 more people being out of work – a stark misjudgment which perhaps reflects recruiters’ angst over what could have been had the tax hike never been announced.  Burnham and Healey have been open about their ambition to “partner” with bosses. Labour’s Business Day on Monday could determine whether that pledge should be taken seriously or simply as neat rhetoric. The mood at last year’s conference was one of betrayal given Reeves targeted the private sector with higher taxes while her colleagues cooked up more and more employment regulation. This year, industry groups are looking to persuade ministers that they can help the country get out of a fiscal nightmare and boost growth – if they’re supported. Speculation around a possible snap election being called is likely to concentrate minds and prompt lobbyists to make even more radical demands. But for business execs to feel satisfied – given tax hikes are likely on their way – some expectation management may be due.