(Nov 1): UK Business Secretary Jonathan Reynolds accepted tax hikes announced in the government’s budget this week may hinder companies’ ability to hire people and raise salaries.

Reynolds, speaking to Bloomberg Television, said the rise in employer national insurance contributions and an uplift in the minimum wage will “be something which affects how that business operates, what they can do in terms of recruitment and pay”.

He defended Chancellor Rachel Reeves’ and the new Labour government’s first budget. She unveiled £40 billion (RM226.23 billion) of tax hikes and said they are necessary to strengthen the UK’s fiscal position.

“If you look at the overall tax position within the UK, if you benchmark some of these changes that we have had to introduce, there is no doubt the UK is still a globally competitive market,” Reynolds said.

Prime Minister Keir Starmer’s government has spent its first few months in office trying to convince global investors the UK is a desirable location. It held an international investment summit and appointed former Darktrace chief executive officer Poppy Gustafsson as the investment minister.

Yet Reeves’ budget led to a sell-off of UK government bonds, known as gilts. She’s since tried to reassure markets by saying the government’s “No 1 commitment” is to “economic and fiscal stability”.

Mid-sized businesses were also unsettled by the budget. UKHospitality, a trade body, said the increased burden on employers “will make it harder for businesses to support employment and invest in their businesses”.

Reynolds said Labour, which took over from Rishi Sunak’s Conservative Party in July, had been put in a “very challenging position” by the previous government. The Tories failed to budget enough for day-to-day spending, Reynolds said.

Reynolds spoke to Bloomberg in Dubai. He’s in the United Arab Emirates (UAE) to address trade ministers of the Gulf Cooperation Council, as the UK attempts to get a free trade agreement (FTA) with the bloc. It’s his second visit to the Gulf since Labour won the general election.

“We see a real opportunity here, a real partnership that is very strong,” he said. An FTA can “substantially improve on that”.

The oil-rich UAE is enjoying a boom, with its population rising rapidly as hedge funds and artificial intelligence firms move to or increase their staff in Dubai and Abu Dhabi. The latter, the capital of the UAE, has more than US$1 trillion (RM4.38 trillion) of sovereign wealth fund capital.

Still, there are some UK-UAE tensions. Last month, Labour was forced to appease Dubai-owned business DP World after it threatened to pull out of the UK’s investment summit. That was after the UK’s transport secretary criticised the employment practices of P&O Ferries, a DP World subsidiary. The Dubai company ultimately took part in the summit.

Reynolds said there would “always be a need for dialogue” over such issues, but that the UK did not “conduct explicit foreign policy questions through our trade negotiations”.

“We should never dodge difficult questions if they need to be had through proper dialog and understanding,” Reynolds said. “But we should also be making the case that bringing economies around the world together is in itself a good thing.”

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