Yet another survey has pointed to deteriorating business confidence ahead of Labour’s inaugural budget later this month.
Business sentiment dropped to 14.4 in the third quarter, according to the Institute of Chartered Accountants of England and Wales’ (ICAEW) confidence monitor, down from 16.7 last quarter.
This was the first time business confidence had decreased in a year, although the ICAEW noted that confidence was still double the pre-pandemic average.
The fall in confidence was likely driven by rising concerns about the tax burden, which was cited by 29 per cent of firms – a joint record.
The survey adds to a growing pile of evidence that fears about the tax burden are harming business sentiment.
Chancellor Rachel Reeves is widely expected to hike taxes in the budget as she seeks to put the UK’s public finances on surer footing.
Although the government has pledged to leave corporation tax unchanged, Reeves is expected to increase capital gains tax and could make employers pay national insurance on pension contributions.
More broadly, many economists have warned that Reeves’ rhetoric has been too gloomy and risks putting firms off investing in the UK.
A survey from the British Chamber of Commerce (BCC) released yesterday showed that tax was now the most pressing concern for UK businesses.
Reflecting fears about the tax burden, businesses surveyed by the ICAEW said they plan to increase investment by just 1.9 per cent over the next 12 months. That was down from an expected 2.1 per cent increase last quarter.
“This drop in confidence suggests that businesses are still cautious about the future,” Alan Vallance, chief executive of the ICAEW, said.
“Businesses are troubled by the tax burden and increasingly reluctant to invest. As the UK prepares to host a major Investment Summit, and speculation mounts ahead of a difficult Budget, the Chancellor must give companies the certainty and stability they need,” Vallance said.
Robert Colville, director of the Centre for Policy Studies, said it was “not surprising” that sentiment had taken a hit given Labour’s gloomy rhetoric.
“Labour have gone to such lengths to spell out how bad the economy is and how much worse it is going to get that by the time the Budget comes, we will probably consider ourselves relieved it wasn’t worse, no matter how bad the announcements are,” he said.
Meanwhile Kallum Pickering, chief economist at Peel Hunt, noted that the surveys were consistent with a number of other recent measures of economic sentiment. “There is clear economic evidence that we’ve seen a confidence shock,” he said.
However, he suggested that the surveys were probably “slightly overdoing it”, pointing out that there had not been a “corresponding drop in activity”.
“The thing that really matters is the overall growth outlook. We largely already know most of what will be in the budget on tax and spending, and that’s unlikely to substantially change the outlook, the positive fundamentals are likely to reassert themselves once we are passed the Budget.”