Britain ‘caught in a trap’ of high taxes and weak growth

CBI warning comes as economists predict National Insurance rise will cost 100,000 jobs

Britain is stuck in a “trap” of high tax and low growth as the cost-of-living crisis intensifies, the boss of the country's leading business group warns today.

The intervention from CBI chief Tony Danker comes as regulator Ofgem unleashes a 50pc rise in energy prices for families and the Bank of England prepares to hike interest rates for the second time in three months. The Government is also about to lift National Insurance in a blow to workers and employers across the UK.

Mr Danker, speaking at the Centre for Policy Studies think tank, will say: “The current settlement isn’t working. There are rising spending pressures; too much tax; and too little growth. We’re caught in a trap.”

The National Insurance rise planned for April “perfectly encapsulates the problem”, Mr Danker told The Telegraph. The Government is determined to press on with the unpopular policy despite widespread opposition from backbenchers.

He said: “Here we are all wanting to tackle the cost of living crisis. So people are understandably saying ‘let’s put off the NI rise’. But we can't put off the NI rise because it’s paying for health service growth. So it perfectly encapsulates the rising spending pressures, which are legitimate, the fact that the Government is needing to rely on tax rises to pay for them.”

Mr Danker added: “You’ve only got 1pc to 1.6pc [growth] to actually pay for this stuff. It's not clear to me that unless you move that 1.6pc number, how you're going to either avoid austerity or permanently high taxes.”

His comments came as economists warned the NI rise could trigger almost 100,000 job losses as minimum wage workers face the biggest risk of redundancies.

The £12bn hike could cost 95,000 jobs, or a £100 a year hit to wages, according to Institute for Employment Studies analysis provided to The Telegraph.

“Any industry where they're relatively more reliant on labour is going to feel greater pain of National Insurance rises,” said Tony Wilson, director of the IES, who based the analysis on a previous Bank of England study.

“Hospitality is particularly worrying because they have come out of a really tough 18 months and are facing a 10pc increase in the tax wedge in their labour cost bills.”

Economists warned lower paid workers are most at risk of job cuts as employers cannot easily pass on higher tax costs in wages.

Labour market economist John Philpott said: “The economics suggest that employers pass the impact of increased employer National Insurance Contributions on to employees in the form of pay cuts or lower pay rises than would otherwise have been awarded.

“The exception is for employees on the minimum/living wage whose pay cannot be cut. For these the impact of the National Insurance Contributions increase will be to raise employment costs and thereby put jobs or job growth at risk.”

Mr Wilson warned more low paid jobs could be automated if labour costs reach a “tipping point”.

He added: “When labour costs go up, if firms don't want to pass those costs on through higher prices, then they've got to find ways to make productivity gains. In general, firms will find it easier to make productivity gains by replacing lower paid staff with technology.”

Research by the Federation of Small Businesses indicates the hike will lift the tax burden of the average small business by more than £3,000, forcing many to pass on extra costs to consumers.

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