New blow for Rachel Reeves as tax fears trigger dire slump in business confidence

Business confidence has plunged to its lowest ebb in three years, battered by unprecedented tax anxieties as firms brace for Chancellor Rachel Reeves' autumn Budget, a worrying survey has revealed today. The Institute of Chartered Accountants in England and Wales (ICAEW) Business Confidence Monitor for the third quarter recorded a dismal -7.3, down sharply from -4.2 in the prior period.

This marks the weakest sentiment since the final quarter of 2022 and caps five straight quarters of decline. With her fiscal statement looming next month, the findings spell are likely to be an embarrassment for the Chancellor and a blow for her growth agenda, amplifying Tory taunts of economic mismanagement. Tax burdens emerged as the chief headache, cited by a record 60% of the 1,000 business leaders polled – a tenfold surge from just 6% in Q3 2020.

It's feared that Ms Reeves will unleash further hikes to plug sizable public finance gaps.

The April National Insurance uptick, which slapped employers with steeper payroll costs, has already stung, while whispers of capital gains or corporation tax rises in the Budget have sent jitters through boardrooms.

ICAEW chief executive Alan Vallance said the situation was "Groundhog Day for Britain's businesses.

He added: "Confidence has collapsed, uncertainty remains, and the tax burden has hit another record high. All in all, the findings make for very grim reading."

He urged the government to make a "cast iron commitment" to freezing business taxes this Parliament, warning that failure risks "sleepwalking into stagnation."

Non-exporters bore the brunt, with confidence cratering from -4.5 to -10.0, underscoring how domestic fiscal squeezes eclipse global headwinds.

Exporters fared marginally better at -5.5. Sectorally, property firms tanked to -23.2 amid a slumping housing market and anaemic commercial demand, trailed by retail and wholesale at -11.4 – sectors hyper-exposed to the NI levy. Curiously, industrial production bucked the trend, rebounding to +4.4 from -10.1, perhaps buoyed by steadier global trade.

The malaise is throttling activity. Annual profits growth slackened to 2.3%, the meagrest since Q4 2023, dogged by flat domestic sales, softening exports and ballooning costs. Capital investment dipped to 1.8% from 2.3%, with forward plans cooling further amid the fog of uncertainty.

The labour market, too, is buckling: employment growth halved to 0.9%, a four-year nadir, with year-ahead expectations at a five-year low of 1.2%. Retail and wholesale alone foresee job cuts.

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ICAEW economics director Suren Thiru painted a bleak canvas.

He said: "Our latest survey points to another chastening quarter... as confidence continues to crumble under the weight of a floundering economy, deteriorating profit margins and unprecedented turmoil over tax."

Firms, he noted, are slashing hires, training and investments to offset employment cost spikes, hobbling productivity levers.

Domestic sales growth flatlined at 3%, with expectations for the year ahead hitting a five-year trough. Exports slowed to 2.4% – the weakest since Q4 2023, partly thanks to US tariff threats – though optimism there ticked up modestly.

For Ms Reeves, who swept into No 11 on pledges of stability after 14 Tory years of chaos, the ICAEW data is a body blow. Growth forecasts have withered since Labour's July poll triumph, strained public coffers demand £20 billion in savings, and business ire could derail the investment surge so vital to her "securonomics".

Regulatory red tape, flagged by 47 per cent as the second-biggest drag – a peak not seen since Q4 2018 – compounds the woe.

Opposition voices pounced. Shadow chancellor Mel Stride decried "Labour's tax raid" as "business Armageddon", while CBI director general Rain Newton-Smith echoed Vallance: "The government must act now to restore faith."

Ms Reeves has sought to steady nerves amid the pre-Budget storm. Speaking at the Labour conference in Liverpool last week, she vowed: "There will be choices to take our country forward, and whatever tests come our way, whatever tests come my way, I make this commitment to you: I will take no risks with the trust placed in us by the British people.”

Warning of fiscal discipline's perils, she added: "When spending gets out of control, when market confidence is lost, that doesn't just show up in some OBR reports and some difficult headlines a few months later, it is felt immediately in the growing cost of essentials and rising interest rates."