Amy Leach, chief economist at the IoD, warned that business confidence had “plumbed new depths in September”.
Rachel Reeves addresses delegates in Liverpool this week (Image: Anadolu via Getty Images)
Business confidence in the UK has fallen to a record low of -74, according to a new survey, with fears over potential tax increases cited as a key factor ahead of Chancellor Rachel Reeves‘ Autumn Budget on November 26. The IoD’s Directors’ Economic Confidence Index, published on Wednesday and based on responses from 588 members collected between September 12 and 29, showed a drop from -61 in August.
Confidence in respondents’ own organisations also fell to -7 from +1. Cost expectations reached a record high of +89, driven by employment costs, while investment intentions fell to -12 points. The index is calculated as the net percentage of positive responses to questions on economic optimism over the next 12 months, using a five-point scale from very optimistic to very pessimistic, with similar net balances for sub-indices on costs, headcount, investment, revenue, wages and exports.
Prime Minister Keir Starmer and Chancellor Rachel Reeves (Image: Getty Images)
Amy Leach, chief economist at the IoD, said: “Business confidence has plumbed new depths in September, following a fleeting improvement at the tag-end of summer.
“Conditions worsened across the board, with cost expectations hitting a record high, driven notably by employment costs. Investment expectations declined again, and revenue expectations turned negative for the first time since March.
“Meanwhile, headcount expectations continue to see-saw as the effects of the April rises in employment taxes and the living wage, alongside future concerns over employment regulations, continue to reverberate across companies.
“We urgently need a genuinely growth-focussed Budget that has business at its heart, that delivers genuine policy coherence and stability and reduces regulatory and tax burdens on business.”
In total, 83% of respondents identified labour costs as the main driver of rising expenses over the next year, up from 77% in March. More than 70% expect wage growth to accelerate, and nearly a third anticipate reducing headcount.
The survey results add to mounting pressure on Ms Reeves, who used her Labour Party conference speech in Liverpool on Monday to warn of “harsh global headwinds” making her budget choices “all the harder”. She acknowledged the year had “brought its fair share of challenges for our party and our country” and added “they won’t be the last”.
hancellor of the Duchy of Lancaster Darren Jones (Image: Getty)
Ms Reeves faces a £22 billion fiscal shortfall, though the National Institute of Economic and Social Research has estimated it could reach £50 billion, requiring tax rises or spending cuts to meet fiscal rules.
At the conference, she insisted she would “not take risks with the trust placed in us by the British people”. She added: “I will make my choices at that budget. They will be choices to take our country forward.”
Ahead of the speech, Ms Reeves told BBC Radio 4’s Today programme: “I think everyone can see in the last year that the world has changed, and we’re not immune to that change.”
She blamed “wars in Europe and the Middle East” and “increased barriers to trade because of tariffs coming from the United States” alongside the “global cost of borrowing”, adding: “I wish it wasn’t so, but I am Chancellor in the world as it is, not the world that I might wish it to be.”
Ms Reeves also ditched a no-new-taxes pledge from her Spring Statement, stressing that the Government would maintain manifesto commitments not to raise VAT, income tax or National Insurance for working people.
Andy Burnham, Labour’s Mayor of Greater Manchester (Image: Getty)
Speaking to Sky News after the speech, Cabinet Office minister Darren Jones said: “I am not ruling anything out, or anything in. All I’m saying is today the manifesto stands. We’ve got a budget process to go through, and any decisions will be announced to Parliament in the normal way.”
Ms Reeves’ time in office has faced significant controversy since Labour’s July 2024 election win, including cuts to winter fuel payments for about 10 million pensioners, which aimed to save £1.4 billion but prompted a partial U-turn after backlash from Labour MPs.
The policy restricted payments of up to £300 to those on means-tested benefits, with recipients falling from 10.6 million in 2023 to 1.3 million last winter. Analysis indicated savings would fall short by hundreds of millions as Pension Credit claims rose.
It also emerged that Ms Reeves had claimed £4,400 in energy support before the cuts, drawing criticism over perceived hypocrisy. The Institute for Government said the handling damaged public trust, initially affecting more than 75% of pensioners.
With Labour trailing Reform UK in polls, Ms Reeves warned: “Whatever tests confront us, have faith, because our party and our country have overcome greater challenges than these.”
She appeared to criticise Greater Manchester mayor Andy Burnham’s calls for more borrowing, saying: “There are still those who peddle the idea that we could just abandon economic responsibility and cast off any constraints on spending. They are wrong – dangerously so.” Mr Burnham has been widely touted as a possible replacement for Prime Minister Sir Keir Starmer in recent days.
She further faced pushback on welfare reforms and the two-child benefit cap, with party rebels threatening opposition to further cuts.
In her conference speech, Ms Reeves confirmed plans for a youth guarantee offering paid work to young people who have spent 18 months not in employment, education or training. She said the government would “push ahead with our plans for Northern Powerhouse Rail” linking towns and cities across northern England.
She committed to a library in every English primary school, noting that 1,700 currently lack one. She also targeted an “ambitious agreement on youth mobility” with the European Union to secure “the maximum economic and cultural opportunities.”
Her speech was interrupted by a pro-Palestinian heckler, with Ms Reeves responding: “We understand your cause and we are recognising a Palestinian state. But we are now a party in government, not a party of protest.”
GDP growth was flat at 0.6% in the second quarter, with inflation at 2.2%. Ms Reeves told delegates: “The economy’s not working well enough for working people.”
Express.co.uk has approached His Majesty’s Treasury for comment.
