Has business confidence taken a “decisive turn for the worse”?

Two major surveys show that Labour’s recent budget has had a negative – and significant – impact on business confidence.

The IoD and CBI reports published within a few days of each other suggest that growth expectations have taken a “decisive turn for the worse”.

Business confidence at a post-COVID low

According to the IoD Directors’ Economic Confidence Index, business leaders’ confidence in the UK economy has crashed to a post-COVID low.

Over 600 business leaders were asked ‘‘How optimistic are you about the wider UK economy over the next 12 months?’ on a scale from ‘very optimistic’ to ‘very optimistic’.

The -65 score on the IoD Index represents the second-worst reading since the poll started in 2016.

In fact, the only score worse than -65 occurred in April 2020, at the start of the pandemic.

Similarly, according to the Confederation of British Industry’s latest growth indicator, growth expectations have turned negative for the first time this year.

These negative reports show a lack of confidence in the new government’s handling of the economy, and the lack of optimism about the economy’s future over the next year is bound to be reflected in the thoughts of many small business owners.

£25bn Employer NI hike will affect the entire economy

The employers’ National Insurance hike—announced at the Autumn Budget—had a significant effect on the survey respondents. Half plan to reduce the amount of future wage increases, 44% expect to raise prices, and 43% plan to reduce headcount.

Class 1 Employers’ NI will increase from 13.8% to 15% from April 2025, and the threshold at which employers start to pay NI on wages will be cut from £9,100 to £5,000. There are no changes to Class 4 NI – the class paid by sole traders.

A rise in the Employment Allowance—which offsets the first £10,500 of employer NI costs per year—has protected small limited companies to some extent, but SMEs will inevitably be hit by reduced activity and investment by larger firms.

The NI rise alone is expected to contribute £25bn towards the record-breaking £40bn Autumn Budget bill.

The uprating in the National Living Wage will also add further cost concerns for businesses of all sizes.

Government “knocking the stuffing out of UK businesses”

Commenting on the news, Anna Leach, Chief Economist at the IoD, said:

Far from fixing the foundations, the Budget has undermined them, damaging the private sector’s ability to invest in their businesses and their workforces.

Leach said there was a serious risk of growth stalling across the private sector.

The broader SME community, as well as family businesses, feel likewise especially exposed to multiple overlapping changes in the tax system.

Alpesh Paleja, CBI Interim Deputy Chief Economist, commented:

Our surveys suggest that anticipated activity was already weakening heading into the October Budget and the Chancellor’s announcements have left businesses with even more tough choices to make.

Posting on X, Shadow Business Secretary, Andrew Griffith MP, said:

Reeves’s summer of ‘trash talking’ the economy, Labour’s jobs tax and the trade union-inspired Employment Bill are knocking the stuffing out of UK businesses.