Business confidence collapses under Labour’s ‘crushing’ tax burden and workers’ rights laws

Business confidence has collapsed to a three-year low as Labour’s ‘crushing tax burden’ and workers’ rights laws take their toll.

Worries about tax have more than doubled since the last general election, a poll by the Institute of Chartered Accountants in England and Wales (ICAEW) found.

And the Budget did nothing to help, with an already negative confidence score weakening further after it took place – to the lowest since the end of 2022.

Jobs are bearing the brunt as firms slash hiring in response to the challenges, the survey of 1,000 business leaders found.

And a separate survey of corporate distress suggested UK firms were more likely than those in other major European economies to face running out of cash.

It came as a succession of big firms from Premier Inn owner Whitbread and retailer The Entertainer lined up to lambast the Government over its botched handling of business rates reform.

The rates debacle – which will mean many firms are struggling to survive as they face a steep rise in bills – is the latest in a series of blows to business under Labour. A promise to help pubs hit by the changes threatens to frustrate others such as hotels, restaurants and retailers also affected.

Since the Government took office, firms have also had to contend with a raid on employer national insurance, steep rises in the minimum wage and the introduction of a raft of new workers’ rights.

ICAEW economics director Suren Thiru said: ‘The economic mood darkened considerably at the end of last year as a triple whammy of soaring costs, a crushing tax burden and slowing sales drove another disheartening drop in overall sentiment.

‘The jobs market is bearing the brunt of these headwinds with our data indicating that companies are increasingly reacting to weaker sales and increasing costs by cutting hiring and curbing other employment-related expenses, notably staff training.’

The ICAEW’s poll found that in the final quarter of last year, a record 64 per cent of firms said the tax burden was a growing challenge, up from 29 per cent at the time of the last general election.

Regulation was the second biggest challenge, with 51 per cent held back as a result of red tape – the highest in more than seven years, partly thanks to workers’ rights legislation.

Meanwhile, analysis of ‘corporate distress’ across the UK, France, Germany, Spain and Italy from restructuring firm Weil highlighted ‘subdued business confidence and cautious investment’ with the Budget having ‘done little to lift sentiment’.

It said higher NI contributions and minimum wage hikes would ‘add to corporate distress in 2026’ while the freeze on income tax thresholds will dampen consumer spending power.

The UK was the third most ‘distressed’ country, behind troubled Germany and France but distress over ‘liquidity’ – or fear of running out of cash – was the highest in the index.

‘While profitability remains under pressure, underlying weakness in economic growth, rising unemployment and slowing wage growth is weighing heavily on confidence,’ the report said.

It came as Whitbread revealed that business rates changes will cost it £35million.

Chief executive Dominic Paul said: ‘We continue to believe the proposed changes to business rates are damaging for the overall sector and will impact future investment and job creation and we, along with the wider hospitality industry, continue to press the UK Government for changes.’

And Andrew Murphy, chief executive of toy retailer The Entertainer told the BBC that Labour was ‘taking a knife’ to the high street with its approach to business rates.