Concerns over announcements made in the Autumn Budget are starting to bite, with ICAEW’s latest Business Confidence Monitor (BCM) for Q4 2024 showing a dramatic drop in business confidence.

Higher business taxes alongside a slowdown in economic activity are weighing down optimism, resulting in business confidence only just remaining in positive territory. Sentiment fell across all sectors, with construction showing the most significant downward swing. 

Confidence

The big topics of conversations during January were consistent with concerns raised in the final month of last year. 

The increase in Employers’ National Insurance, the threshold reduction, the rise in the National Minimum Wage and expectations as to the impact of the Employment Rights Bill were high on the agenda, especially for those working in manufacturing, retail, hospitality, construction, social care and the charity sector.

A social care provider in the South East cautioned: “We expect providers to close, driven by breaches in banking covenants, because of the increase in the National Living Wage and employers’ national insurance. This will continue to exacerbate the trend of a reduction in the number of available care home beds putting additional pressure on an already strained sector.” 

A member working in the hospitality sector in London described Budget announcements relating to employment as “fundamentally changing the way we think about recruitment”. Having previously taken on school leavers, they described this model as now “blown up”, raising a question mark over future hires.

Members debated options to navigate rising labour costs. These include raising prices, delaying pay rises, reducing recruitment or cutting services. 

A retail business based in the Midlands said: “Prices will ultimately have to go up and customers will have to bear it.” Others were less confident, particularly those in manufacturing, where there was concern over the impact on volume of raising prices.

One view from the hospitality sector in the North West reflected the dilemma felt by many: “The bit that has hit us is the Employers’ National Insurance threshold reduction meaning most of our seasonal staff will be caught. This is an additional cost of over £0.5m, which we’ll pay for by reducing senior staff pay awards and reducing recruitment. We had budgeted for a rise in National Insurance but not the threshold reduction.” 

Members were also vocal on changes to Business and Agricultural Property Relief, especially those working in the agricultural sector. A member in farming based in Northern Ireland said: “This will negatively impact family-owned businesses. Where it’s not possible to borrow funds, land may need to be sold to meet Inheritance Tax liabilities, leaving the risk of much smaller farms no longer being financially viable.”

Economic backdrop

This month, members continue to navigate a tough economic backdrop with little sign of reprieve. “The cost of delivering everything is going up – you can only go for businesses’ profits if they are making some,” was the view of a business member in the West of England.

Another view echoed wider and ongoing frustrations with fiscal drag and cliff edges. “We should stop talking about inflation, we should talk about price levels now – price increases have compounded. What is the point of trying to run a business? It’s easier to get a job that pays less with less stress – the more you earn, the more you are taxed.”

Stability and growth

The call for more stability and certainty was a key theme of ICAEW’s Manifesto, which outlined the Institute’s asks of the incoming government ahead of the general election. 

Budget announcements make a revision of 2025 budgets now necessary for many businesses. This uncertainty has been fuelled in recent weeks by activity in the bond market and what this might mean for fiscal policy moving forward. 

Indeed, member feedback during the BCM Q4 period suggested they remain wary of further tax impacts. “It’s 50/50 whether we get the growth we need. If we don’t get the growth the danger is we’re looking at the same budget in two years,” was the view of one practice member.

Business rates were cited as a specific example of ongoing uncertainty. “They kicked the can down the road for another year,” commented a hospitality business member in London – a view echoed across the sector.

The success of the Budget hinges on investment and growth. Unfortunately, investment appetite remains muted with some businesses exploring opportunities overseas. 

A member operating as a portfolio FD commented: “The sense of growth is not there. One of my clients is on his way to Italy, with another one considering a move overseas.”

A manufacturing business in the South West reinforced this point, noting that as a direct consequence of the Budget, it is 14% cheaper to employ people in his Spanish operation. It therefore now makes sense to do less here. 

The importance of an industrial and trade strategy to drive economic growth was a point made in ICAEW’s responses to both the Department for Business and Trade’s Industrial Strategy Consultation and, more recently, its Trade Strategy Review Consultation.

ICAEW member views are invaluable and consistently raised in consultations and discussions with policymakers. We are extremely grateful to our volunteer network of committees, communities and ICAEW regional teams who provide feedback and gather insights.