Rachel Reeves made a deliberate decision in her Budget to load more taxes and costs on to business - Leon Neal/Getty Images Europe
The car manufacturing giant Stellantis is closing a factory. EasyJet is slashing the number of flights around the UK. Even the chairman of Gail’s has said that some of his businesses may have to close. If you want to buy a new car or take a Christmas break, it is about to get a lot harder.
In reality, there is a common theme to all those stories: they are all part of Chancellor Rachel Reeves’s shrinking economy. And from retail chains to pubs and restaurant groups it is going to get a lot worse over the next few months.
For anyone who was expecting the UK to be emerging as the “fastest-growing economy in the G7” by now, as the Labour Party promised during the election campaign, it has turned into a sobering week.
Stellantis announced it was closing its van-making plant in Luton, mainly in response to the Government’s crazy targets to ban the sale of any petrol powered vehicles in only six years from now.
EasyJet announced that it was cutting the number of domestic flights, blaming the Chancellor’s decision to impose a steep rise in air passenger duty on connections within the UK. With £32 in duty on a return ticket, it reckons the demand simply won’t be there to fill all the seats.
Likewise, Luke Johnson, the chairman of Gail’s, told MPs on the Employment Rights Committee that some of his “companies might not survive” the Government’s plans on worker’s rights and that insolvency specialists were “rubbing their hands” at the prospect of a wave of company closures.
Indeed, Begbies Traynor, the UK’s largest insolvency specialist has already reported a spike in business, while this week RSM reported a 5pc increase in company closures in the hospitality sector.
The list goes on and on. Companies are shutting plants, cutting back on their operations, or else closing completely.
True, businesses expand and contract all the time, and the economy always fluctuates. And yet, there is a common theme to all those stories. They are just the start of Reeves’s shrinking economy. Extraordinarily, each and every one of those closures can be directly traced back to a decision that either the Chancellor herself, or one of her cabinet colleagues, have deliberately taken.
Led by its fanatical green commissar Ed Miliband, the Government is pressing ahead with a ban on petrol cars and vans by 2030 (even if it was watered down slightly on Friday) making it impossible for Stellantis to carry on with all its manufacturing plants.
Ministers pressed ahead with extra employment rights, which, while they may be nice for the people who benefit from them, inevitably make it harder to operate companies that rely on lots of modestly paid staff. The living wage was pushed up well beyond the rate of inflation, and ahead of average earnings, with no serious analysis done on how that might impact employers.
Most importantly of all, the Chancellor made a very deliberate decision in her first Budget to load more and more taxes and costs on business, both with her £25bn raid on National Insurance charges, plus a blizzard of minor taxes such as increasing the levy on air travel. There were plenty of different ways that the Government could have raised taxes if it felt it had to, from raising VAT to the basic rate of income tax, but instead Reeves was determined that businesses should pay.
We are now witnessing the consequences of that. The real problem is this: the UK was not a very profitable place to do business to start with. According to the Office for National Statistics, the average margin for private non-financial firms was just 9.3pc, and for services firms 14.9pc.
In the US, the comparable figure was 16pc, and despite its many problems profits are higher across much of the euro-zone. British business was hardly awash with spare cash. By hitting them with so many extra taxes and charges, those profits are being eroded.
The point the Chancellor does appear to understand, despite all the time she spends boasting about her economic expertise, is that at the margin a few of them will go under. And even more will scale back on branches, warehouses, factories and services that are no longer viable.
Each time that happens, there is a multiplier effect that ripples out into the rest of the economy. As jobs are lost, those people have no money to spend and in turn that hits other businesses. And every time a branch closes, there is one more empty space on the high street, and each time a flight route is scrapped, it gets harder for people to travel around the country, hitting the tourism trade, and deterring investment.
The dismal reality is this: the process has only just started.
We will see cutbacks and closure among the big retailers very soon, especially as their staff costs have been pushed up so quickly. The pub and restaurant chains will be reassessing the viability of each branch, and terminating the leases on those that can no longer cover their costs. The hotel groups may well have to scale back as they realise that no one can afford to travel as frequently as they used to.
Each decision may not matter very much in itself, except of course to the people directly involved. But put them all together, and very quickly you have an economy that has started to crash, and that very quickly becomes self-perpetuating.
Unless the Chancellor changes course, and reverses some of her tax rises, that will only accelerate – until the UK has slumped into a full-blown recession.
