Tax rises are our biggest headache before budget, say bosses

Tax has overtaken inflation to become the biggest worry for companies in the latest sign that Labour’s warnings of a painful budget are eroding confidence, a closely watched survey of business sentiment has found.
Forty-eight per cent of the 5,152 firms polled for the latest quarterly economic survey by the British Chambers of Commerce (BCC) said that tax was more of a concern for them than it had been three months earlier, up from 36 per cent in the previous quarter. It now surpasses inflation, which dipped to 46 per cent from 49 per cent, as the main external worry for businesses.
The findings shed light on the mounting nervousness before the Labour government’s first budget on October 30 and the impact that messaging from ministers is having on firms.
Companies, entrepreneurs and investors are bracing themselves for tax rises after repeated warnings from the government about the tough choices it faces.
Rachel Reeves, the chancellor, has said that “difficult decisions” need to be made after claiming that the previous Conservative administration left a £22 billion hole in the public finances, something the Tories have disputed.
Sir Keir Starmer has also cautioned that the budget is “going to be painful” and that people will be asked to “accept short-term pain for long-term good”.
There is speculation that Reeves could try to raise revenues by reforming capital gains tax, which at present is levied at a lower rate than income tax; through possible changes to inheritance tax; and by lifting levies on the banking industry. She has ruled out increases to income tax, national insurance, VAT and corporation tax, restricting any room for manoeuvre.
Shevaun Haviland, director-general of the BCC, said: “Businesses are clearly anxious. They understand the fiscal backdrop the chancellor is facing and the need for the government to address public finances. However, that must not be at the expense of investment and growth.”
The budget comes as businesses seek to move on from the economic turmoil of recent years after soaring inflation forced the Bank of England into a rapid interest rate rise. A sharp fall in inflation allowed the Bank to start lowering borrowing costs in August.
Even so, the BCC found that business confidence is slipping, with 56 per cent of companies surveyed expecting revenues to rise in the next year, down from 58 per cent in the previous quarter. Thirty-five per cent of respondents said that domestic sales had increased in the past three months, weakening from 38 per cent in the second-quarter survey.
In another sign of faltering sentiment, the proportion of companies reporting that they had boosted investment in new equipment, machinery or plant in the past three months slid to 23 per cent from 25 per cent.
The organisation has been running its quarterly economic survey of conditions in the private sector since 1989. The latest poll was conducted between August 19 and September 16 and 91 per cent of respondents were small and medium-sized businesses.
Separately, Haviland has written in The Times to warn the government that its forthcoming revamp of workers’ rights through the Employment Rights Bill, which is expected imminently, must be “proportionate and affordable”.