Business confidence hit by tax fears as Rachel Reeves’ headroom crumbles

British business confidence has been hammered by Labour’s tax blows but fears remain heightened the government will return for more. 

A survey by the British Chambers of Commerce (BCC) revealed 56 per cent of firms were particularly concerned about their tax burden, which comes as Prime Minister Sir Keir Starmer failed to rule out further tax rises in PMQs on Wednesday.

Businesses dealt with the impact of taxes from Chancellor Rachel Reeves’ maiden budget coming into effect in April. This included the 1.2 per cent jump in employers’ national insurance contributions and hike to the national minimum wage.

David Bharier, head of research at the BCC, said: “April’s rise in national insurance contributions has cemented tax as the dominant concern for firms.

“Businesses are entering a new employment landscape marked by structurally higher labour costs and administrative requirements, fuelling increased anxiety about redundancies.”

But fears have intensified after continuous U-turns by the Labour government, eroding the Chancellor’s wafer thin fiscal headroom.

Labour’s latest retreat on welfare reforms is estimated to cost £5bn, according to the Institute of Fiscal Studies, which has led to heightened tax concerns.

Business confidence lowest since Liz Truss era

Half of the businesses surveyed by the BCC said they expect conditions to either worsen or not change.

The BCC have urged the government to rule out further tax grabs in the Autumn Budget, in a bid to give firms some respite as they battle rising expenses. 

Shevaun Haviland, director general of the British Chambers of Commerce, said: “The rising cost of doing business means confidence levels remain at their lowest levels since 2022.” 

Businesses did provide some modest sighs of relief, with the amount expected to put prices up over the next three years reducing to 44 per cent, from 55 per cent. 

But the BCC branded overall confidence as “weak” with less than half of firms forecasting an increase in turnover within the next 12 months. Whilst this was a minor increase, it marked the second lowest figure since the aftermath of Liz Truss’ mini budget in 2022.

Haviland said: “It’s encouraging to see a drop in the number of firms planning to raise prices…

“We now need the Government to rule out any further business taxes in this year’s budget.”

There is now a near unanimous expectation that taxes will rise in the Autumn Budget, and with top minister Pat McFadden saying yesterday that the government won’t raise taxes “on working people” many analysts expect any new burden to fall on businesses, pensions, dividends and investments.