Recent data indicates that tax issues have emerged as the primary concern for companies, surpassing inflation, according to a key business sentiment survey from the British Chambers of Commerce (BCC). This comes amid growing uncertainty about the upcoming Labour government’s first budget, set for October 30.
In the latest quarterly economic survey involving 5,152 firms, 48% reported that tax concerns have heightened compared to three months ago, an increase from 36% in the last quarter. This shift sees tax concerns rising above inflation, which saw a decline to 46%, down from 49%.
This trend highlights increasing trepidation among businesses regarding government financial strategies, particularly prior to budget announcements. Many firms, entrepreneurs, and investors are preparing for potential tax hikes as officials stress the need for difficult fiscal decisions.
Chancellor Rachel Reeves has noted the necessity for “difficult decisions,” citing a £22 billion gap left by the previous Conservative government, a claim contested by Conservative officials.
Labour leader Sir Keir Starmer has warned that the forthcoming budget may entail significant sacrifices, suggesting that individuals may need to “accept short-term pain for long-term good.”
Speculation is rife that Reeves may seek additional revenue through reforming capital gains tax—currently taxed at a lower rate than income tax—alongside potential modifications to inheritance tax and increased levies on the banking sector. However, she has clarified that adjustments to income tax, national insurance, VAT, and corporation tax are off the table, limiting her options significantly.
Shevaun Haviland, BCC’s director-general, expressed that businesses are understandably anxious. They are aware of the challenging fiscal context the chancellor is navigating, yet emphasized the importance of ensuring that public finance considerations do not hinder investment and economic growth.
The upcoming budget arrives as businesses aim to recover from recent economic upheaval, notably high inflation that triggered rapid interest rate hikes by the Bank of England. Fortunately, a recent drop in inflation has allowed for reductions in borrowing costs starting in August.
Despite these developments, the BCC’s findings reveal a decline in business confidence. Only 56% of surveyed businesses anticipate revenue growth in the coming year, a decrease from 58% in the previous quarter. Additionally, just 35% of respondents reported an increase in domestic sales over the last three months, down from 38%.
Moreover, the percentage of firms investing in new equipment or machinery fell to 23%, down from 25% previously. The BCC has been conducting its quarterly economic survey since 1989, with the latest round taking place between August 19 and September 16, featuring a predominantly small and medium-sized business participant base.
In a separate commentary, Haviland advised the government in The Times to ensure that its planned changes to workers’ rights through the forthcoming Employment Rights Bill are “proportionate and affordable.”