Business confidence in the UK has collapsed to its lowest level on record, surpassing even the darkest days of the Covid pandemic, as Labour’s economic policies continue to send shockwaves through the private sector.
A damning new survey from the Institute of Directors (IoD) paints a bleak picture of growing despair among British business leaders following Chancellor Rachel Reeves’s decision to impose record tax increases on employers.
Confidence in the UK economy has slumped so drastically that the IoD’s Economic Confidence Index fell to an unprecedented -72 in July, eclipsing the previous record low of -69 in April 2020.
The survey shows a widespread collapse in optimism. Just 8.1% of business leaders said they felt optimistic about the economic outlook, while 80.6% expressed pessimism. Confidence in their own businesses also nosedived to -9, down from +3 in June.
Many business leaders are pointing the finger squarely at the Labour government’s tax and regulatory policies.
Anna Leach, Chief Economist at the IoD, warned:
“UK business leaders have entered the summer with the lowest confidence levels we’ve seen since our records began in 2016. Companies continue to battle cost increases – particularly arising from the national minimum wage and NI changes – and many are frustrated that while the government has been quick to raise costs for business, it has been much slower to deliver improvements to the wider business environment.”
Leach added:
“We’re now living with the economic consequences of those tax hikes, even as uncertainty around future costs once again builds… The government must urgently quash rumours of further tax rises for business this autumn, and accelerate planning reforms and de-regulation to restore confidence and drive growth.”
“Attacking Private Enterprise”
Andrew Griffith, the Shadow Business Secretary, issued a scathing rebuke of Labour’s approach:
“This socialist Government hits businesses with higher taxes, raised energy costs and more trade-union inspired red tape. Instead of the cuts in spending which are urgently needed, they are attacking private enterprise with the zeal of a Left-wing student union.
“A year ago businesses faced a summer of uncertainty followed by massive tax hikes. Like a bad horror movie franchise, the Chancellor seems determined to release a sequel.”
That “sequel” came in the form of Labour’s £25bn tax raid on employers announced in October. The measures, which took effect in April, included a hike in National Insurance from 13.8% to 15% and a lowering of the earnings threshold — dragging more part-time workers into the tax net. Simultaneously, the national living wage was raised by 6.7%.
Staggering Collapse in Key Business Indicators
Across the board, the data reveals an economy grappling with worsening conditions:
- Revenue expectations plummeted from +8 to -8 — the worst reading since October 2020.
- Investment intentions collapsed from -10 to -27, matching lows from late 2024.
- Headcount expectations dropped sharply from -10 to -23, suggesting job cuts are looming.
- Export expectations fell into negative territory (-4) for the first time since the indicator was introduced in April 2023.
- Cost expectations rose to +84, close to February’s record high of +87.
- Wage expectations jumped from +40 to +65, compounding the cost crisis.
Almost 85% of business leaders surveyed believe Labour’s policies will be unsuccessful in driving growth, with two-thirds (66%) saying they will be “very unsuccessful.”
The three areas businesses most want action in are:
- Taxation (68%)
- Cost of employment (64%)
- Regulatory burden (48%)
Mel Stride, the Shadow Chancellor, urged Chancellor Reeves to provide clarity and relief:
“She must heed the calls from the Institute of Directors and put to bed speculation about more damaging tax rises.”
Growth Stalls, Jobs Under Threat
The grim mood comes amid a broader deterioration in the UK economy. GDP shrank in April and May, unemployment is climbing, and job vacancies are falling as businesses rein in spending.
Meanwhile, despite warnings from economists that further cuts or tax rises of at least £20bn are necessary to meet Labour’s self-imposed borrowing rules, the Government has shown little willingness to control public expenditure. U-turns on welfare reform and pensioner winter fuel payments have only added to the perception of economic incoherence.
Even as revenues fall and hiring slows, the burden on businesses keeps growing. Two-thirds of companies say they urgently need tax relief and support with the cost of employment. Almost four in ten (39%) want relief on energy bills, and nearly half are demanding cuts to red tape.
Labour’s Business Backlash
The Labour government, less than a year into its term, now faces the ire of a business community that feels vilified rather than supported. With confidence imploding and investment vanishing, there are mounting fears that Reeves’s tax-first approach is strangling the private sector — the very engine of economic recovery.
Unless the government changes course, Britain risks entering an extended period of economic stagnation, with businesses paralysed by uncertainty and hostility from a government more focused on redistribution than growth.
Source: https://www.iod.com/news/uk-economy/iod-press-release-economic-confidence-plummets-to-all-time-low/
