Business confidence fell to a fresh record low in September, as fears of another cost squeeze stoked an already dire operating environment that was found to have “worsened across the board”.
According to an Institute of Directors (IoD) poll, private sector optimism plunged to the lowest level since the industry body started collecting data a decade ago, piling fresh pressure on new business secretary Peter Kyle and the Chancellor as she prepares her second Budget.
Optimism among business leaders fell to a score of -74 last month, the survey found, meaning nearly 80 per cent of bosses felt either ‘quite pessimistic’ or ‘very pessimistic’ about the outlook for the UK economy over the next year. This was dow from a score of -61 in August and eclipsed the previous record – set this July – of -72.
Execs overwhelmingly attributed their dour predictions to fears that the batch of tax hikes expected at next month’s Budget will set off another round of heightened price pressures that will drive up the cost of wages and firms’ other inputs.
Business confidence falls as they brace for tax hikes
Chancellor Rachel Reeves is widely expected to unveil up to £30bn of tax rises when she publishes her second major fiscal event on 26 November. Bosses fear the more constrictive fiscal landscape will drive up staff’s wage demands and supply costs, in a manner redolent of the months following the government’s fateful £25bn raid on payroll tax last year.
“Business confidence has plumbed new depths in September, following a fleeting improvement at the tag-end of summer,” said IoD boss Anna Leach. “Conditions worsened across the board, with cost expectations hitting a record high, driven notably by employment costs.”
Respondents’ outlook for staff headcount and investment were also found to have fallen sharply. Headcount expectations fell to -13 from -4 in August, while investment intentions plunged as much as 12 points to -20.
The bleak poll adds to a string of similar updates that have laid bare the battle the Chancellor is locked in to revive the UK’s economic fortunes. On Tuesday, the Office for National Statistics confirmed the economy grew by just 0.3 per cent in the second quarter, while the UK’s fiscal watchdog is widely expected to downgrade its all-important productivity forecast, in what would amount to a major blow to the government’s tax-and-spend plans.
Leach added: “The Chancellor’s conference speech rightly reiterated the role that fiscal credibility has in providing the platform for growth. But we urgently need a genuinely growth-focused Budget that has business at its heart, that delivers genuine policy coherence and stability and reduces regulatory and tax burdens on business.”
The IoD data was reflected in a similar poll released on Tuesday, which also found confidence had slumped as firms braced for the chilling effect of higher taxes.
Lloyds’ monthly Business Barometer – whose more optimistic findings mean it has been regularly cited by both the Prime Minister and Chancellor – dropped from 54 to 42 per cent.
Shadow business secretary Andrew Griffith said the Lloyds reading was evidence of the “government’s failure”.
“This survey was the final straw that Labour Ministers had to clutch,” he added.
“Even though it was always an outlier, the PM quoted it emphatically to rebut claims that business confidence is on the floor.”