UK business confidence has plummeted to its lowest point since the tumultuous mini-budget introduced by former Prime Minister Liz Truss, according to new data from the British Chambers of Commerce (BCC). Surveying 4,808 firms, the BCC reported startling findings with only 49 percent of businesses expecting their turnover to increase over the next 12 months. This figure mirrors levels last seen at the end of 2022, intensifying concerns about the economic climate.
The decline is closely tied to Chancellor Rachel Reeves’s recent budget, which proposed £40 billion in tax increases, mainly aimed at businesses. The most notable change is the rise of national insurance contributions (NICs), with employer NICs jumping from 13.8 percent to 15 percent and the contribution threshold being lowered. This tax hike, which 63 percent of companies flagged as significant, has created unease across various sectors.
Shevaun Haviland, Director General of the BCC, voiced her concerns over the ramifications of these changes. “The worrying reverberations of the Budget are clear to see in our survey data. Businesses’ confidence has slumped in a pressure cooker of rising costs and taxes,” she stated. The results underline the growing anxiety among business leaders struggling with financial pressures and the cost of operations.
Despite this pessimism, some analysts suggest the UK economy might still see faster-than-expected growth this year, buoyed by additional public spending outlined by Reeves and the anticipated easing of interest rates. A report by KPMG estimates growth could reach 1.7 percent by 2025, up from 0.8 percent last year, but financial stability hinges on controlling inflation, which is projected to stay above the Bank of England’s target of 2 percent until 2027.
While this glimmer of hope exists, it is overshadowed by firms’ plans to raise prices significantly as they grapple with increased expenses from the tax hikes. The BCC survey indicated more than half—55 percent—of businesses plan to hike prices over the next three months, marking a sharp rise from just 39 percent previously.
Concerns extend beyond immediate financial ramifications. A separate survey by the Federation of Small Businesses (FSB) revealed troubling trends among small employers. With 92 percent of small businesses apprehensive about the proposed Employment Rights Bill, significant numbers indicated they would either reduce headcount or avoid hiring altogether, fueled by fears of potential litigation over flexible work arrangements and other rights.
Tina McKenzie, FSB’s policy chair, emphasized the sentiment among small firms. “Small firms have made it crystal clear the Bill will not motivate them to hire more whatsoever. Their feedback is emphatic, resounding, and overwhelming,” she said. Such widespread caution is poised to have lasting consequences on employment and, by extension, living standards across the country.
The Tax Policy Center's research shows significant confrontations await companies determined to navigate the upcoming tax increases. Companies are already indicating they may cut back on investment, stirring worries about the long-term health of the UK economy. "If employers fear they will be sued, fewer will hire—this could exacerbate the situation, causing rising benefits bills and lower living standards for the UK population," McKenzie warned.
Current economic policies are under scrutiny as businesses groan under the weight of taxation. The BCC Director General underlined the sense of urgency: “Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging. Businesses are already cutting back on investment and say they will have to put up prices in the coming months.”
The stark decline of business confidence is sending shivers through the economic sector as analysts express their concerns. The survey from the BCC is labeled as the largest poll of business sentiment since the budget, marking the shift from hope to caution among firms. With only 2 percent of companies indicating they plan to cut prices, the public's inflation anxiety grows.
Echoing sentiments from other surveys, the perception of businesses appears to resonate with wider economic trends, reflecting fears of stagnation rather than recovery since the Labour government took office last October. The bank's optimistic forecasts for modest growth may clash with the reality faced by companies stifled by rising costs and tax burdens.
These developments present considerable challenges to Chancellor Reeves and her government, tasked with reviving business morale and fostering confidence when the sentiment is so low. Policymakers must navigate the delicate balance of raising necessary revenue and ensuring businesses thrive, as the shadow of the Truss mini-budget looms large over the decisions being made today.
Key players are watching closely as forecasts indicate the economic outlook remains uncertain, weighed down by previous missteps and present challenges. If confidence does not rebound soon, the effects could spill over beyond the immediate fiscal horizon, leaving both the economy and businesses searching for stability.