Budget tax hike bursts business confidence
In the largest poll of business sentiment since October’s Budget, the BCC’s Quarterly Economic Survey, shows concern about tax, including national insurance, has spiked.
Following the chancellor’s autumn statement, 63% of firms cited it as a worry (compared with 48% in Q3), the highest level on record. Concern about inflation and interest rates remains at similar levels to Q3.
Business confidence has declined significantly with 49% of responding companies expecting their turnover to increase over the next twelve months (compared with 56% in Q3). Confidence levels are lowest in the retail and hospitality sectors (39% and 42% respectively).
The survey was conducted after the Budget, with the fieldwork carried out between 11 November and 9 December. The data from over 4,800 businesses across the UK (91% of whom are SMEs – fewer than 250 employees) also shows that the majority of firms are expecting to raise prices.
Tax now by far the top external concern
Following the Budget, concern about taxation is now cited by 63% of responding firms, up from 48% in Q3. This is the highest level of tax concern since 2017, when the BCC started asking this question. The levels in certain sectors are higher, with 72% of production and manufacturing firms, and 68% of construction and engineering businesses raising tax as a concern.
Concern about inflation remains broadly similar to the previous quarter – 47% compared to 46% in Q3. Worry about interest rates has fallen slightly to 28% (29% in Q3).
Business confidence hit by Budget measures
There has been a significant drop in business confidence since the chancellor’s statement. Only 49% of firms say they expect their turnover to increase in the next twelve months, down from 56% in Q3. This is the lowest figure since the aftermath of the mini budget in late 2022. A fifth (21%) of businesses expect turnover to worsen, up from 15% in Q3, and 30% expect no change.
Profitability confidence has also been hit, 40% of firms expect profits to increase over the next year (48% in Q3), while 32% of businesses expect them to fall.
More businesses expecting to raise prices
Over half (55%) of responding firms say they expect to raise their prices in the next three months, compared with 39% in Q3. While 43% of businesses expect prices to stay the same, and only 2% expecting to decrease.
Labour continues to be the main cost pressure for firms – but the issue is now raised by 75% of businesses, up from 66% in Q3. The issue is most significant for the hospitality sector with 87% reporting it as a challenge, followed by 84% of firms in the transport and logistics sector.
Fewer firms have increased investment plans
Only 20% of businesses say they have increased investment plans over the last quarter, down from 23% in Q3. 24% of firms say they have cut back investment plans, a steep rise from the Q3 figure of 18%. 56% of businesses say their plans have remained the same.
The issue is more marked in certain sectors, with 42% of retail and hospitality firms reporting a scaling back of investment and 30% of manufacturers.
Business conditions struggle
The percentage of respondents reporting increased domestic sales has fallen again to 32%, compared to 35% in Q3. 42% reported no change and 26% of firms said they had seen a decrease in sales.
Retailers were the most likely to have seen a fall in sales (36%) followed by manufacturers (33%).
What business say
“The budget has been devastating, the failure to introduce the promised business rate reform while introducing the NI changes will have a detrimental impact on the high street and the wider economy.” Large hospitality firm in North West England
“NIC Increases will have a significant impact on costs which as a price taker we are unable to pass on to customers so this will hit our profitability” Large manufacturing firm in Northern Ireland
“Labour’s decision to increase National Insurance for businesses has been a hammer blow to business confidence & has caused reversal in plans to increase investment.” Small Construction Firm in Scotland
“The NI increase is a real concern for us; we are a hospice. It will add £225k to our payroll, and we cannot afford it.” Medium public sector firm in East of England
Shevaun Haviland, director general of the British Chambers of Commerce said: “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.
“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.
“Business stands ready to work in partnership to make the proposed Employment Rights legislation work for all, but the current plans will add further costs on firms.
“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.
“Without urgent government action to ease the pain on businesses, the challenging economic landscape will get worse before it gets better.”
David Bharier, head of research at the British Chambers of Commerce said: “This dataset is a clear signal that business sentiment has been significantly impacted following recent policy announcements, notably national insurance increases. Taxation is now by far the biggest concern, cited by 63% of businesses.
“Confidence has now dipped to 2022 levels, with less than half of firms expecting improved turnover over the next year and over a fifth now expecting it to worsen.
“Faced with rising costs, our survey paints a difficult picture and shows businesses are having to make some very difficult decisions. Many tell us they expect to push up prices and cut back on investment and we expect this to lead to a low or no-growth economic climate in the coming months.”
