Business confidence has slipped to its lowest level since the aftermath of Liz Truss’s disastrous mini-Budget in Autumn 2022, a new survey has revealed.
It comes as a group of economists has warned that the Treasury is likely to raise taxes even further this year, despite record tax hikes at the government’s first Budget being seen to have contributed to the gloomy economic outlook.
According to the British Chambers of Commerce quarterly economic survey, just 20 per cent of businesses have increased investment in the past three months, while 24 per cent have decreased.
Following the chancellor’s autumn statement, which saw Rachel Reeves unveil a record £40bn worth of tax rises, 63 per cent of firms cited it as a worry – the highest level on record.
Business confidence has declined significantly with just 49 per cent of companies expecting their turnover to increase over the next twelve months, compared with 56 per cent in the third economic quarter of 2024.
The latest figure is the lowest level since Ms Truss sparked gilt market freefall and a run on sterling after introducing unfunded tax cuts in her 2022 mini-Budget.
The survey also showed that business conditions are weak, with only 24 per cent of firms reporting increased cashflow and 30 per cent a decrease.
The poll, which was conducted between November 11 and December 9 and consulted over 4,800 businesses across the UK, also shows that the majority of firms are expecting to raise prices.
Shevaun Haviland, BCC’s director general, warned that things will get worse before they get better, calling for a better trading deal with the European Union to improve the situation.
Meanwhile, she cited the chancellor’s hike to employers’ national insurance, which was unveiled in October and is expected to rake in around £25bn a year, as one of the reasons for the gloomy outlook.
“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”, Ms Haviland said.
“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 government is rightly coming up with long-term strategies on industry, infrastructure and trade. But those plans won’t help businesses struggling now.”
She added: “To help business we need to see quick action in three specific areas. Firstly, ministers should accelerate business rate reform to create a system that incentives investment.
“We also need the Government to speed up infrastructure investment, to help SMEs in supply chains across the country. Finally, it’s crucial to support exports, prioritising a better trading deal with the European Union.”
It comes as a separate poll of economists has warned that the government will be forced to impose further tax rises this year, despite an expectation that the country will return to growth.
The Financial Times’ survey of 96 leading economists found that, while the UK is likely to outperform France and Germany in 2025, previously announced tax rises could undermine the economy.
Most of the economists surveyed expected a low rate of economic growth this year, less than the 2 per cent rebound the Office for Budget Responsibility forecast for 2025.
It comes after official figures showed the UK economy unexpectedly contracted in October this year, marking two months in a row of negative growth for the first time since the pandemic.
The rate of consumer price index (CPI) inflation rose to 2.6 per cent in November, its highest level since March and the second monthly increase, while the Bank of England held interest rates at 4.75 per cent as it cautioned over “heightened uncertainty in the economy”.
Maxime Darmet, senior economist at Allianz Trade, warned that this year’s growth “will undershoot the government and the OBR’s forecasts”.
“Therefore, tax receipts will probably undershoot as well”, the economist said.
Almost all the economists warned that Ms Reeves will be forced to hike taxes again before the next general election.
Andrew Oswald, professor of economics and behavioural science at Warwick university, said there would be “a dawning realisation . . . that without income tax and VAT rises, we cannot make the damn sums work”.
Ms Reeves has previously defended her decision to raise taxes, insisting her plan provided the stability needed to secure growth.
“Now we have fixed the foundations of our economy, I am going for growth”, the chancellor said after the October fiscal event.
“Because we cannot tax and spend our way to prosperity, nor can we tax and spend our way to better public services. Instead, we need economic growth and we need economic reform.”
Speaking at a CBI event, she also said the government had no alternative solution.
“I have heard lots of responses to the government’s first Budget but I have heard no alternatives,” she said. “We have asked businesses and the wealthiest to contribute more. I know those choices will have an impact.
“But I stand by those choices as the right choices for our country: investment to fix the NHS and rebuild Britain while ensuring working people don’t face higher taxes in their payslips.”
The Treasury has been contacted for comment.