World Stock Watch

UK Businesses Struggle with Confidence Amidst Tax Hike Concerns

The British Chambers of Commerce has released a survey revealing a significant decline in business confidence, with many firms planning to raise prices to cover increased tax payouts. This comes as a response to the recent hike in National Insurance (NI) contributions, a tax on earnings.

Tax Worries on the Rise

A staggering 63% of businesses cited tax as a major concern, up from 48% in the previous quarter. This increase is largely attributed to the Labour government’s debut budget, which introduced a hike in NI contributions. As a result, more than half of businesses (55%) expect prices to rise in the next three months, primarily due to higher labor costs.

Investment and Turnover Expectations Slump

The survey also revealed a decline in investment and turnover expectations. Only 49% of companies expect their turnover to increase in the next 12 months, down from 56% previously. Concerns about inflation and interest rates remain steady, but firms across various industries, including hospitality, manufacturing, construction, and healthcare, are worried about covering additional costs and scaling back investment.

Government Response

The Labour Party argues that tax rises were necessary to address a significant shortfall in public finances. However, the BCC survey echoes prior findings of a decline in confidence among British companies, with senior business leaders criticizing the budget for increasing uncertainty and potentially holding back economic expansion.

Economic Stagnation

The UK is currently experiencing a period of stagnation, with no growth recorded in the third quarter. The BCC is urging the government to take action to mitigate the impact of tax increases and drive economic growth. “Businesses are going to have to shoulder this tax increase, but what we want to see is action,” said Shevaun Haviland, head of the BCC.

Borrowing Costs on the Rise

UK borrowing costs have climbed following the October 2024 budget, exceeding levels seen after the “mini-budget” of September 2022. While economists note that the recent rise in bond yields is not equivalent to the surge seen in 2022, businesses remain concerned about the impact of tax hikes on their operations.