Business leaders’ confidence in the Labour government is waning, according to a recent survey by the Institute of Directors (IoD). The IoD’s economic confidence index, which had shown a significant rise in optimism among its members in July, has now fallen into negative territory as concerns grow over potential tax increases and enhanced workers’ rights.
Key economic indicators, including business investment and employment expectations, saw the most significant declines. Revenue, export, and wage expectations also dropped.
Despite the UK experiencing the fastest economic growth among G7 countries in the first half of the year, Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves face challenges in maintaining business confidence. The government has identified securing growth as its top priority but has also acknowledged the complications posed by a £22 billion deficit in public finances.
The upcoming 30 October budget is expected to include “tough choices,” such as cutting winter fuel payments for all pensioners. Critics argue that additional costs, including a £9 billion public sector pay award to avert strikes, are further straining the government’s budget. There is also speculation about potential tax hikes, particularly on wealth, with capital gains tax being a likely target.
The government’s proposed Employment Rights Bill, which aims to prohibit zero-hour contracts and ban “fire and rehire” practices, has added to the business community’s concerns. Firms may face substantial fines from a newly merged government agency for violating these rights, which may also include a “right to disconnect” outside working hours.
The energy sector has raised particular concerns about the government’s plans to increase the windfall tax on North Sea oil and gas producers. Industry body Offshore Energies UK warns that the move could lead to a £12 billion loss in revenue due to reduced production and investment.
Anna Leach, IoD chief economist, commented on the survey results: “It’s disappointing to see last month’s welcome uptick in business leader confidence snuffed out over the summer. The sharpest drops in our economic measures are in investment and headcount expectations. The recent news on employment rights and autumn tax rises has dented confidence in the business environment in the UK.”
Leach called on the government to ensure long-term policy stability, clarity on the industrial strategy, and engagement with businesses on workers’ rights to restore confidence and drive investment.
Echoing these concerns, Lord Bilimoria, former president of the CBI and founder of Cobra beer, warned that tax increases could lead to an exodus of investors. “Investors are not going to come here if you keep putting up taxes,” he said, adding that capital gains tax hikes would be a “short-sighted move.”
Brent Hoberman, co-founder of lastminute.com, also cautioned against measures that could deter business investment, stressing the need for policies that encourage growth rather than drive investors away.
