Business Uncertainty Spikes as Chancellor Reeves Prepares for ‘Painful’ Budget Reveal

Economic concerns precede Chancellor Rachel Reeves's 'tough' budget announcement

Companies are halting their recruitment efforts and certain top managers are offloading stocks in British firms amid anxieties over the expected policies to be revealed soon.

By Daniel Binns, commercial correspondent

Friday, October 11, 2024, 3:

Companies are halting the recruitment of new employees as leaders offload stocks in British firms due to concerns about the potential consequences of the chancellor's inaugural budget, reports suggest.

On Friday, the Confederation of British Industry (CBI) stated that it was evident some companies were postponing hiring and investment plans until they had greater certainty regarding the policies.

Additional studies have indicated that individuals are divesting from stocks and bonds in anticipation of possible fiscal policies that Rachel Reeves might announce on October 30.

Following allegations of a significant deficit in public finances, Prime Minister Sir Keir Starmer has indicated that the upcoming budget will be difficult.

The specifics of the budget remain undisclosed, but Labour has committed to keeping taxes like income tax, VAT, and national insurance from increasing for working individuals.

Sources indicate that the chancellor may be contemplating additional hikes, including a potential rise in capital gains tax.

According to The Guardian, the tax imposed on the gains realized from the sale of an appreciating asset might rise to as high as 39%.

The capital gains tax rate ranges from 20% to 28%, varying by the type of asset, for individuals in the higher income tax brackets.

Evelyn Partners, a wealth management company, reported that almost one-third of business owners accelerated their plans to sell their shares in the company within the last year.

A survey involving 500 business owners, each with a yearly revenue exceeding £5 million, revealed that nearly 25% sold their businesses due to concerns about potential increases in capital gains tax. Additionally, 20% were motivated by apprehensions regarding possible reductions in inheritance tax relief.

Laura Hayward, a tax partner at Evelyn Partners, commented, "The prime minister's announcement that the forthcoming budget will be 'painful' has unsettled owner-managed businesses, leading many to seek an immediate exit."

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A study from AJ Bell reveals that since the general election in July, executives of companies listed in the UK have divested shares exceeding £440 million in value.

The investment platform reported that the frequency of disposals has doubled compared to the last six months.

AJ Bell's director, Russ Mould, commented, "Speculation about potential alterations in the tax system before the budget announcement could be capturing some attention."

In recent developments, BNY, the largest custodial bank globally, reported that in September, its clients unloaded £3 billion worth of British government bonds, marking the quickest sell-off since 2022.

Experts believe that worries about the chancellor potentially altering financial regulations and boosting expenditures may have played a role.

Geoff Yu, a prominent market strategist at the bank, commented, "Numerous factors, such as shifting expectations from the Bank of England, can prompt these sales, but we've noticed a decrease in investor holdings of UK gilts as we approach the forthcoming budget."

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Ben Jones, the chief economist at the CBI, remarked, "According to our surveys, there's an indication that businesses might have slowed down once more in September due to rumors regarding possible budget declarations.

Reports indicate that numerous companies are holding off on hiring and investments as they await further insight into the economic strategies of the incoming administration.

Stay informed with the most recent updates from the UK and across the globe by tuning into Sky News.

During an interview on Sky News this Friday, when questioned about potential increases in capital gains tax, government minister Pat McFadden responded: "The budget is still a few weeks away. Unfortunately, I anticipate there will be rumors regarding various budget-related actions in the coming weeks."

"The most reasonable response I can offer is that the chancellor will disclose her plans when she presents the budget… it wouldn’t be prudent for me or any other minister to engage in speculation."

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