Business confidence has plummeted to its lowest level in three years, an industry body’s leading quarterly survey has found, as rising tax fears ahead of the Budget are “quashing” investment and growth in the UK economy.
The Labour government has boasted that the country was “open for business” after it struck investment deals with tech companies and signed off trade deals with India and the US.
But a new survey by The Institute of Chartered Accountants in England and Wales (ICAEW) has raised questions over the government’s pledge to be more business-friendly.
Its data for sentiment between July and September showed that business leaders were less optimistic about company prospects than at any time in nearly three years.
The sentiment score in the third quarter sat at minus 7.3, which was below minus 4.2 for the previous quarter.
Budget fears mount
The drop in confidence was blamed on squeezed profits, low recruitment and investment levels, and rising tax fears ahead of the Budget.
Researchers at the trade body said it was striking that six in ten businesses claimed the tax burden to be a “growing concern” as levels hit another historic high following a ten-fold rise over the last five years.
Confidence among non-exporting businesses was also significantly lower than overseas traders, pointing to the severity of domestic problems around taxation that are hampering the UK economy.
Despite efforts from Labour ministers to ease nerves among industry officials, the survey reflects firms’ fears that they may not be spared from a damaging tax raid at this year’s Budget amid forecasts that Chancellor Rachel Reeves could have to fill a £30bn black hole in the public purse.
Alan Vallance, ICAEW’s chief executive, said said the results make for a “very grim reading” as business owners headed into the months leading up to the Budget with their heads hanging low.
“Concerns over further tax rises next month – which appear inevitable – are quashing any sparks of risk-taking or ambition,” Vallance said.
“If the government is to come good on its growth mission it must demonstrate that it is firmly on the side of business by cultivating the conditions in which they can thrive, beginning with a cast iron commitment not to increase business taxes in this parliament.
“If it fails to do that, Britain risks sleepwalking into stagnation.”
Tax hikes slow down employment growth
The survey showed that annual profits growth slowed to 2.3 per cent, the lowest level in more than a year and a half.
Growth expectations were also lower than at any time in the last two years, according to the survey of around 1,000 accountants.
Staff training budgets are also declining while Rachel Reeves’ £20bn employment tax raid was held responsible for employment expectations falling to the lowest point in five years.
“These figures suggest that firms are making the arduous adjustment to materially higher employment costs by seeking savings through curtailing hiring, limiting staff training and curbing investment plans, impeding key levers of growth and productivity,” Suren Thiru, ICAEW economics director, said.
“The mounting squeeze from plummeting confidence and a weakening outlook for domestic sales and employment means the economy will struggle to deliver the uplift in growth needed to avoid more painful decisions at the Budget.”
One rebound in sentiment came in industrial production, which has suffered from high energy prices and the threat of higher tariffs.
But sentiment could fall again after Trump has ramped up his attacks on the US pharmaceutical product imports and the EU raised its steel tariffs to 50 per cent, a blow to Starmer after months of trying to build a “Brexit reset” with the economic bloc.