Business confidence has plunged to a record low as tax fears stifle sentiment and hold back growth, a damning new poll has revealed.
The Chancellor was urged to come up with a ‘more coherent and credible plan’ for the economy after the findings by the Institute of Directors (IoD), a leading business group.
It comes as official figures confirm that growth slowed sharply in the second quarter of the year as cautious consumers squirrelled away more savings.
Meanwhile, firms sounded the alarm over the government’s insistence that it will implement a new workers’ rights bill which they say will be a disaster for jobs and the economy.
The gloomy updates reveal the grim reality of Britain under Labour even as Keir Starmer claimed at the party’s annual conference that it is leading a ‘national renewal’.
Instead, families and businesses are being squeezed by resurgent inflation while employers grapple with devastating tax hikes.
Chancellor Rachel Reeves’ £25 billion raid on national insurance at her last Budget is being blamed for pushing up prices and damaging the jobs market.
Keir Starmer and Rachel Reeves are set to unleash more tax rises in November Budget
Now firms fear that Ms Reeves will be coming back for more at her next Budget in November.
The IoD said its economic confidence index fell to minus 74 in September, surpassing a recent low of minus 72 in July to mark the lowest level since the survey began in July 2016.
The poll of 588 bosses showed cost expectations hitting new record highs – largely thanks to increasing labour costs. Hiring plans and investment intentions also slipped.
Labour’s NI hike and the sharp rise in the minimum wage as well as concerns over the forthcoming workers’ rights bill were among the factors blamed for the slump.
Anna Leach, chief economist at the IoD, said confidence had ‘plumbed new depths’ and that bosses were calling for a reduction in costs imposed by the government ‘whether through a lower tax burden or lighter regulation’.
‘But crucially they are seeking a more coherent and credible plan for growth,’ Ms Leach added.
‘Some positive steps are in place – including additional public sector investment and long-term policy plans. But persistent fears that taxes on business and assets will rise are stifling confidence, holding back investment, and threatening growth and living standards.’
Shadow chancellor Sir Mel Stride said: ‘Business confidence has been shattered – not by global uncertainty, but by deliberate choices made by the Labour government.
‘Rachel Reeves claimed she would lead the most pro-business Treasury in history. Instead, within months, she hit employers with a £25 billion jobs tax.
‘And after assuring businesses she would not be back for more, it’s now clear that yet more tax rises are on the way to plug the multi-billion pound hole the Chancellor has blown in the finances.
‘The uncertainty and speculation means firms have stopped hiring and investing.’
It came as the Office for National Statistics (ONS) confirmed yesterday that the UK economy by just 0.3 per cent between April and June, a sharp slowdown compared with the 0.7 per cent expansion seen in the first quarter of the year.
The data also revealed that cautious consumers chose to save more of their income, putting away 10.7 per cent of their income, up from 10.5 per cent in the first quarter.
Thomas Pugh, chief economist at accounting firm RSM UK, said: ‘The increase in the saving ratio suggests consumers turned more cautious in the second quarter. The big question now is whether speculation about the Budget will undermine confidence further.’
Meanwhile, firms have raised the alarm at new business secretary Peter Kyle’s insistence this week that the workers’ rights bill spearheaded by Angela Rayner will be implemented ‘in full’ despite her departure from government.
They are worried about Labour’s plans to introduce ‘day one rights’ for new staff and instead want to see extra protections against unfair dismissal come into effect after six months.
There are also fears that reforms entitling workers to contracts with a minimum number of weekly hours could go awry if the level is set too high.
Hugh Osmond, the founder of Punch Taverns and former boss of Pizza Express, said: ‘It will be a further disaster for employment. Who will want to take on staff without a probation period? This will be a further huge negative for the economy, not just hospitality.’
Alex Hall-Chen, principal advisor for employment at the IoD, said: ‘If the government is serious about achieving economic growth it needs to urgently implement meaningful changes to the Bill, particularly around changes to unfair dismissal, guaranteed hours, and trade union reforms.
‘In the absence of action to address employers’ concerns, the Bill will continue to have a negative impact on job creation and economic growth.’
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