Companies across the private sector are braced for a “difficult” winter as activity is forecast to downturn across UK services due to mounting tax fears, fresh research has indicated.
A leading survey by the Confederation of British Industry (CBI), considered to be one of the UK’s most influential business groups, has suggested that private sector activity would fall in the next three months.
Its weighted balance for expectations in the next three months remained at -20 in October while its output volume figure for the previous three months was also left at a low not recorded at any time over the last two years.
Business volume in the consumer services sector was expected to decline at a faster pace than business and professional services.
Distribution sales and manufacturing are also set to suffer from further declines in activity in the run-up to Christmas.
Brutal few months ahead
The CBI’s deputy chief economist Alpesh Paleja said firms across the private sector faced a brutal few months ahead amid mounting speculation of damaging tax hikes coming at the Budget.
“Firms are facing a difficult winter, with private sector momentum weak and confidence fragile,” Paleja said.
“Uncertainty around the upcoming Budget is weighing heavily on sentiment, with many firms keeping key decisions on hold until more clarity is forthcoming. Cost pressures from a variety of sources remain strong, with last year’s tax rises adding to the drag.
“As a result, tough decisions to deliver policy stability and address fiscal pressures will be needed at the Budget.
“Our surveys clearly show that the private sector cannot bear the brunt of these decisions once again.”
Tax fears hit businesses
CBI chiefs highlighted the impact of business tax burdens already hitting a 25-year high.
Paleja warned the Chancellor against “tinkering around the edges” on smaller revenue-raisers, which would include tax types such as capital gains taxes and excise duties.
Data in the CBI’s latest report also uncovered the damage last year’s Budget has done to the UK’s private sector,
Bosses told researchers that a £25bn rise in employers’ national insurance contributions (NICs) and increase to the national living wage, which could yet be raised further, had held back growth across industry.
The survey also suggested that firms would plan to cut headcount further in the three months to January, with hiring intentions having been in negative territory since November 2023.
Some executives in the survey, which had nearly 800 respondents, said they had turned to automation and offshoring work to reduce costs for businesses.
CBI member companies will be hoping Reeves avoids adding further taxes on businesses later this year, having said at an event last year that she was “not coming back with more borrowing or more taxes”.
Earlier this week, the BBC and Financial Times reported that large productivity downgrades by the Office for Budget Responsibility would create a £20bn shortfall in her headroom. The costs of welfare spending and higher debt interest payments to the government’s lenders are set to add to the fiscal hole Reeves faces at this year’s Budget.