Business confidence dented by fears of higher taxes in budget

Business confidence fell for the first time in a year amid growing concerns about potential tax rises in the upcoming budget.

According to the latest Business Confidence Report from the Institute of Chartered Accountants in England and Wales (ICAEW), confidence among businesses fell from 16.7 in the second quarter to 14.4 in the third quarter.

The survey, which collected responses from 1,000 professional advisors as of September 20, revealed that 29% of respondents cited “tax burden” as a major concern. The decline in confidence comes with growing speculation that the government may provide more tax increases to support public finances.

Alan Vallance, chief executive of the Institute of Chartered Accountants ICAEW, said: “The results show that businesses are distressed by the tax burden and increasingly reluctant to invest. As the UK prepares to host a major investment summit, and with speculation growing ahead of a tough Budget, the Chancellor must give businesses certainty and stability.” Which you need.

Business sector concerns about the tax burden come despite a broader easing of inflationary pressures. The survey showed that salary growth slowed slightly to 3.6% year-on-year, the lowest rate in more than two years but still nearly double pre-pandemic levels. Wage growth is expected to slow further over the next 12 months.

While domestic sales growth reached an annual high of 3.8%, export growth slowed to 2.7%, the lowest rate for 2024. Investment growth also weakened slightly, with an expected increase of only 1.9%, down from 2.1% in the previous quarter.

Suren Thero, director of economics at ICAEW, noted that these figures indicate a “simple reality check” for the UK economy. “Weak expected export and investment activity, coupled with fears of a painful budget, have led to a decline in business confidence despite support from strong domestic sales growth,” he said.

The survey also indicates that although the economy is expected to grow in the third quarter, the pace of expansion may slow as the boost from the recent decline in inflation fades.

As the Budget approaches, business leaders are calling for reforms to VAT and business rates, along with boosting public and private investment to support long-term economic growth and prosperity.