Britain’s biggest business lobby has urged Chancellor Rachel Reeves to make “hard choices” in this week’s budget and abandon what it calls “death by a thousand taxes”, warning that a second major tax-raising package in little more than a year risks choking growth and undermining investment.

In a speech to the Confederation of British Industry’s (CBI) annual conference on Monday, CBI director-general Rain Newton-Smith is due to accuse the government of shutting employers out of key decisions on energy policy, pensions and sweeping new employment rights, even as it leans on companies to help repair the public finances.

“If growth is your priority, prove it – make hard choices for it,” Newton-Smith will say, according to advance extracts of her remarks. “All short-term politics leads to is long-term decline, and this country cannot afford another decade of stagnation.”

Her intervention piles pressure on Reeves as the chancellor finalises a budget expected to raise taxes by tens of billions of pounds for the second time since Labour’s landslide election victory in July 2024, while pledging not to increase income tax rates.

Labour returned to power after 14 years of Conservative government on a promise to deliver the “highest sustained growth in the G7” and end what party leader Keir Starmer has called Britain’s “doom loop” of low growth and strained public services. Reeves’ first budget, delivered on 30 October 2024, raised around £40 billion in extra revenue, largely from businesses and wealthier households, and introduced strict fiscal rules to balance day-to-day spending by 2029/30.

Since then, higher borrowing costs, weaker growth forecasts and the government’s decision to scrap a planned £5 billion welfare savings programme have eroded the fiscal “headroom” Reeves created. Independent estimates suggest the chancellor now needs in the region of £30 billion in further tax measures to rebuild a credible buffer and reassure bond markets still wary after the gilt turmoil triggered by Liz Truss’s unfunded mini-budget in 2022.

Thirty-year government bond yields are trading at about 5.35%, and some investors have warned Reeves could be forced back to Parliament with a second package if this week’s budget is judged too soft on borrowing.

Against that backdrop, British media have reported that Reeves will stick to Labour’s pledge not to raise the headline rates of income tax, instead relying on frozen thresholds – which pull more people into higher bands as wages rise – and a series of new or extended wealth and property taxes.

Among the measures expected to be announced on Wednesday are the scrapping of the controversial two-child limit on child benefit, at an estimated annual cost of around £3 billion, and an additional property charge on homes worth more than £2 million to help fund the change and bolster fiscal credibility. The Treasury has already confirmed that regulated rail fares in England will be frozen next year for the first time in three decades, in what ministers describe as a cost-of-living measure that also helps support town and city centres.

For employers, that mix amounts to a second successive tax-heavy budget at a time when they face higher borrowing costs, weak demand and mounting regulatory obligations. Many business leaders fear the cumulative effect could be to deter investment and hiring, even as the government talks up a new industrial strategy.

Newton-Smith will welcome the broad direction of Labour’s plans on industrial policy, trade and infrastructure and praise ministers for attempting to provide long-term certainty after years of policy churn. But she will argue that key aspects, particularly on energy and the labour market, risk backfiring because they have been designed without genuine consultation.

She is expected to single out the government’s flagship Employment Rights Bill – which implements much of Labour’s “New Deal for Working People” – as a major source of concern. The bill introduces day-one protection from unfair dismissal, near-automatic rights to a contract reflecting regular hours worked, tighter limits on the use of “fire and rehire” tactics and stronger sick pay and redundancy rules, as well as a framework for sector-wide “fair pay agreements” and greater union access.

The CBI and other leading employer groups have warned peers that the package, when combined with existing obligations, could add up to £5 billion a year to firms’ costs and make companies more cautious about taking on staff, particularly in smaller businesses and cyclical sectors. They say many of the proposals are being pushed through at speed, leaving little time to adjust.

On pensions, Newton-Smith is expected to urge ministers to avoid reforms that increase the cost or complexity of running workplace schemes, arguing that British capital markets need a stable and predictable regime if they are to support the government’s ambitions for higher investment in infrastructure and green industries.

“We need long-lasting reform that is built in partnership – not a closed door,” she will say.

At the same CBI event, Business and Trade Secretary Peter Kyle will seek to reassure manufacturers by launching a consultation on the British Industrial Competitiveness Scheme, a key part of Labour’s industrial strategy designed to tackle the UK’s persistently high industrial electricity prices.

Under proposals first unveiled in June, around 7,000 energy-intensive businesses – including steelmakers, chemical producers and paper manufacturers – would see their power bills cut by up to 25%, or roughly £40 per megawatt hour, from 2027 through deeper exemptions from green levies such as the Renewables Obligation, Feed-in Tariffs and Capacity Market charges. The government says more than 300,000 jobs could benefit.

UK industrial electricity prices in 2023 were about 46% above the median level across advanced economies and almost 50% higher than in France and Germany, according to official data. They were roughly four times those paid by comparable firms in the United States and Canada, a gap manufacturers say has already driven production overseas and threatens to undermine Labour’s plans to rebuild domestic industry and reach clean power by 2030.

Kyle has described the new scheme as “just the start” of efforts to bring British energy costs into line with international competitors and is expected to signal that ministers are open to further adjustments after the consultation.

However, Stephen Phipson, chief executive of manufacturing body Make UK, has warned that the scheme will need to be widened if it is to make a material difference, saying many companies outside the strict definition of “energy-intensive” also struggle with high electricity costs. Industry groups are pushing for broader eligibility, faster implementation and longer-term certainty over the reliefs on offer.

The push and pull between Labour and business over tax, energy and regulation highlights the political stakes of Wednesday’s budget. Starmer and Reeves have spent the past three years courting corporate leaders, hosting round-tables and investor summits to argue that Labour is now the “natural party of business” and promising a predictable, “mission-led” government focused on growth, clean energy and reforming the NHS.

At the same time, the party campaigned on a platform of strengthening workers’ rights, ending “sticking plaster” cuts to welfare and investing in public services, all within tight borrowing limits aimed at avoiding a repeat of the 2022 market turmoil.

Reeves has framed her approach as a series of “fair choices” to repair the public realm and reduce debt interest over time, funded by those with “the broadest shoulders”. She argues that fiscal discipline is a prerequisite for the private investment surge needed to lift productivity and living standards.

Business groups broadly support Labour’s emphasis on growth and long-term planning but say the emerging tax and regulatory mix risks tilting too far towards redistribution and away from competitiveness. They warn that the UK is at risk of falling behind the United States, which has launched large-scale green subsidies, and the European Union, which is also moving to shield its industries from high energy prices and global competition.

For Newton-Smith, the test of this week’s budget is whether it convinces both investors and employers that the government has a coherent, pro-growth plan rather than a patchwork of revenue-raising measures.

“The question is not whether we need difficult decisions,” she will say. “It is whether those decisions add up to a strategy that puts investment, competitiveness and productivity at the heart of Britain’s future.”

Reeves will set out her budget in the House of Commons on Wednesday afternoon. Markets, businesses and millions of households facing higher taxes and strained services will be watching closely to see how she balances the competing demands of fiscal prudence, social promises and the drive for faster growth.