The Chancellor must act urgently to restore business confidence

77 per cent of businesses have ‘low or very low confidence’ in the UK’s business environment; winning business back will require us to actively improve our offering, with comprehensive reforms to our regulatory, legal and fiscal framework, says Sam Bidwell

With all eyes on Washington and Kyiv, the government must not lose sight of trouble closer to home. And for Starmer and Reeves, the scale of private sector frustration with the UK’s business climate could soon prove to be a material challenge which threatens to undermine their efforts to get the economy back on track.

That’s according to the Adam Smith Institute’s 2025 Business Confidence Survey, which found that a staggering 77 per cent of businesses consulted had ‘low or very low’ confidence in the UK’s business environment. By contrast, a scant four per cent reported ‘high or very high’ confidence, suggesting that the government will have plenty of work to do if it wants to revive the UK’s ailing growth prospects.

And the picture from the City isn’t much rosier: 62 per cent of London businesses reported dissatisfaction with the UK’s direction of travel – rising to a staggering 81 per cent amongst financial services firms.

For nearly three-quarters of businesses, high tax rates were a major concern, with 64 per cent concerned about high energy prices. A further 45 per cent expressed frustration with the UK’s complicated regulatory framework, with businesses large and small reporting their own challenges with navigating red tape. Stories of public sector failure to capture the opportunities presented by private sector dynamism were as numerous as they were depressing.

The threat of lawfare also featured in a concerning number of responses, with more than one in 10 businesses immediately concerned about legal action. That fear was particularly concentrated amongst medium-to-large businesses, which make up just one per cent of UK businesses, but which also contribute a majority of the country’s employment and turnover.

For major players, the threat of legal action is compounded by the rapid growth of class-action cases in recent years, powered by the expansion of third-party litigation funding (TPLF). The combination of class action expansion and the proliferation of TPLF creates a legal environment in which consumer protection cases benefit litigation funders and claimant law firms, rather than negatively affected consumers, undermining trust in the UK’s legal system for businesses and individuals alike.

The threat of lawfare

In recent years, a number of high-profile class action cases have been heard in UK courts – with the biggest ever class-action case in British history reaching the High Court in 2024, led by law firm Pogust Goodhead and funded by Gramercy. In that case, the Court is considering a case against Australian mining firm BHP, which could face a bill of some £36bn in relation to some 600,000 claimants. This is despite steps taken by BHP to settle with the Brazilian authorities, providing redress in the relevant jurisdiction. 

For businesses worldwide, this sends a clear signal – invest in the UK, and risk falling foul of our ever-expanding class action regime. Last year, the Adam Smith Institute predicted that Britain’s class-action boom could have a negative impact on business confidence – our latest survey seems to suggest that those predictions were, unfortunately, true.

All of this pessimism comes despite the fact that, according to most businesses surveyed, the UK still has much to celebrate. Whether the English language, our geographic location, the quality of our human capital or the strength of our universities, most businesses agreed that the UK should be a great country to build and grow a business – if only our policy landscape was as favourable as our fundamentals.

So what can the Chancellor do to revive business  confidence? In the short term, the government should scrap plans to increase employer NICs and corporation tax, at a time when businesses desperately need a lifeline. But in the long term, it will not be enough to return to the status quo ante. We are already in the process of losing investment to our international competitors; winning business back will require us to actively improve our offering, with comprehensive reforms to our regulatory, legal and fiscal frameworks. If this government is serious about going for growth, it’s time to unleash the enormous potential of British business.

Sam Bidwell is director of research and education at the Adam Smith Institute