Business confidence has dropped for the first time in a year amid growing concerns over potential tax increases in the upcoming budget.
According to the latest business confidence monitor 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 gathered responses from 1,000 professional advisers up until September 20, revealed that 29% of respondents cited the “tax burden” as a key concern. The fall in confidence comes as speculation mounts that the government may introduce further tax hikes to shore up public finances.
Alan Vallance, CEO of ICAEW, said, “The findings show that businesses are troubled by the tax burden and increasingly reluctant to invest. As the UK prepares to host a major investment summit, and speculation mounts ahead of a difficult budget, the chancellor must give companies the certainty and stability they need.”
Business concerns over the tax burden come despite a broader easing of inflationary pressures. The survey showed that salary growth had slowed slightly to 3.6% year-on-year, the lowest rate in over two years but still nearly double pre-pandemic levels. Wage growth is expected to decelerate further over the next 12 months.
While domestic sales growth reached a yearly high of 3.8%, export growth slowed to 2.7%, marking the lowest rate for 2024. Investment growth also weakened slightly, with an expected increase of just 1.9%, down from 2.1% last quarter.
Suren Thiru, economics director at ICAEW, noted that these figures signal a “slight reality check” for the UK economy. “Weaker expected export and investment activity, alongside fears of a painful budget, dented business confidence despite a boost from stronger domestic sales growth,” he said.
The survey also suggests that while the economy is expected to grow in the third quarter, the pace of expansion may slow as the boost from recent inflation declines fades.
As the budget draws near, business leaders are calling for reforms to VAT and business rates, alongside stronger public and private investment to support long-term economic growth and prosperity.
