Tax worries knock UK business confidence, survey shows

7:23 pm Tuesday, October 08th, 2024

By Suban Abdulla

LONDON (Reuters) – British business confidence fell in the third quarter as tax worries hit investment, according to a survey of accountants that chimes with similar concerns from other business groups before the new Labour government’s first budget.

The Institute of Chartered Accountants in England and Wales said on Wednesday that its quarterly Business Confidence Monitor fell to 14.4 in the three months to September, the first decline in a year and down from 16.7 in the previous quarter.

“The findings show that businesses are troubled by the tax burden and increasingly reluctant to invest,” ICAEW chief executive Alan Vallance said.

Finance minister Rachel Reeves has warned that taxes will probably have to go up in her Oct. 30 budget after she said she had uncovered a 22 billion pound ($29 billion) hole left in this year’s public finances by the previous Conservative government.

The ICAEW said 29% of companies cited the tax burden as a growing challenge, the joint highest in the survey since it started in 2004 and well above the average reading of 16%.

A separate survey from the British Chambers of Commerce on Tuesday also showed a decline in business morale due to concern about the impact of the budget on tax levels.

The government has ruled out increases to the rates of income tax, corporation tax, value-added tax and National Insurance social security payments. But the ICAEW said businesses were concerned about other tax hikes including lifting capital gains tax.

Businesses have already slightly scaled back plans to increase investment. Firms in the ICAEW survey said they planned to increase investment by 1.9% over the next 12 months, down from 2.1% before.

Prime Minister Keir Starmer will host an international investment summit on Oct. 14, aimed at boosting foreign direct investment to help improve economic growth – one of his main missions since coming to power in July.

“As the UK prepares to host a major investment summit, and speculation mounts ahead of a difficult budget, the chancellor must give companies the certainty and stability they need,” Vallance said.

“Reforms to VAT and business rates, alongside public and private investment … could help to achieve this.”

($1 = 0.7629 pounds)

(Reporting by Suban Abdulla; editing by David Milliken)