A recent survey by ICAEW shows a decline in UK business confidence due to tax hike fears.
- Business confidence index drops from 16.7 to 14.4 between the second and third quarters.
- 29% of advisors identified the ‘tax burden’ as a critical concern for businesses.
- Slowing salary growth and weakened export and investment activities contribute to uncertainty.
- Calls for tax reforms and investments arise as the budget approaches.
The recent business confidence monitor from the Institute of Chartered Accountants in England and Wales (ICAEW) highlighted a decline in confidence among UK businesses. The index decreased from 16.7 in the second quarter to 14.4 in the third quarter, reflecting growing concerns over potential tax hikes in the upcoming budget. Of the 1,000 professional advisers surveyed, 29% cited the ‘tax burden’ as a significant issue affecting their outlook.
The survey indicates a broad concern over the potential introduction of further tax increases by the government, which could be aimed at stabilising public finances. Alan Vallance, CEO of ICAEW, expressed that businesses are troubled by the existing tax burden and are becoming increasingly hesitant to invest. He stated, ‘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.’
Despite a general easing of inflationary pressures, business concerns persist. Salary growth has slowed to 3.6% year-on-year, which is the lowest rate in over two years, though it remains nearly twice the pre-pandemic average. According to the survey, wage growth is expected to decelerate further over the coming twelve months. Meanwhile, domestic sales growth reached a high of 3.8% this year, yet exports have grown by only 2.7%, marking the slowest rate recorded in 2024.
Additionally, the investment growth rate has seen a mild decline, projected to rise by only 1.9%, down from 2.1% noted in the previous quarter. These figures signal a reality check for the UK economy, as noted by Suren Thiru, the economics director at ICAEW. He commented, ‘Weaker expected export and investment activity, alongside fears of a painful budget, dented business confidence despite a boost from stronger domestic sales growth.’
The outlook for economic growth in the third quarter remains optimistic, yet tempered by the anticipated slowdown as the positive impacts of reduced inflation wane. As the budget announcement nears, there are calls from business leaders for reforms targeting VAT and business rates, along with an emphasis on enhancing both public and private sector investments to ensure sustained economic growth and prosperity.
The looming threat of tax hikes combined with slowing economic indicators has cast a shadow over UK business confidence.
