Imagine yourself to be a business leader in the UK right now. News of new taxes, stricter worker rights, among other things, have consumed the media, and those happen to be something that sends jitters down the spines of many a leader. A recent survey by the Institute of Directors finds that 40% of business leaders feel pretty gloomy about the prospects of the UK economy. As a matter of fact, their confidence has seen a sharp drop in only one month!
What's Behind the Gloom?
The IoD represents some 20,000 business leaders, ranging from small startups to large companies, and their confidence index fell from a plus 7 in July to a minus 12 last month. The drop is substantial considering it reached the three-year high earlier. Anna Leach, chief economist at the IoD, which represents company directors explained that this sharp decline in confidence is principally related to news from the past few weeks about the changing role of the employment rights and the spectre of new taxes this autumn.A 'Black Hole' in the Finances
Back in late July, Chancellor Rachel Reeves announced that there was a Β£22 billion gap-or "black hole"-in the public finances. The Chancellor warned this would force her to make "difficult decisions," possibly increasing taxes. The Prime Minister, Sir Keir Starmer, then followed, signaling that he had "no other choice" but to plan a "painful" Budget for October, which has reputedly seen a fat tax rise lined up for business.
Possible Tax Increases and New Rules for Workers
Among the many ideas floated is an increase in the capital gains tax-the tax levied upon profit made from selling assets, including property and stocks. Also on the cards is an increase in the National Insurance contributions-a tax levied upon employers on their employees' salaries.
Business leaders aren't concerned only about new taxes; they're also concerned about the Government's plans to give more rights to workers. Some of those new rights might include allowing workers to refuse answering emails or phone calls late at night and giving employees the right to ask for a four-day workweek from the first day they start their jobs.
Labour's Big Plan for Worker Rights
Labour's Deputy Prime Minister Angela Rayner is the driver of this new workers' rights. She promised to ensure businesses legally offer flexible working arrangements by default. These are part of what the Labour Party is labeling their "new deal for working people," a key promise in their manifesto that helped them win the recent General Election.
While many businesses initially appeared to throw their support behind the Labour Party, an IoD survey seems to indicate some of that support may be slipping away as the implications of the new plans begin to sink in.
Worries About a Possible Downturn
There is also a concern that the Government's words and actions might just push the country into an economic slowdown. The survey found business leaders are pulling back from plans to hire new staff and invest in their companies at the fastest rate since the COVID-19 pandemic began.
Anna Leach for the IoD said, "As we head into a busy autumn, we're urging the Government to take the time to carefully plan for the long term. Businesses need a stable tax and policy environment to feel confident enough to invest." She added that the more clarity over the Government's plans for industry and taxes would help raise business confidence.
Falling Plans for Investment and Hiring
An IoD survey of found the net balance of bosses planning to invest in their business over the next year tumbled sharply from 24 points in July to just 10 points in August. Meanwhile, the number of business leaders planning to hire more staff has fallen by 14 points-the biggest drop since the start of pandemic lockdowns in 2020.
Meanwhile, more than 30% of business leaders now say they feel "quite pessimistic" about the future of the UK economy, with 10% feeling "very pessimistic." Only 27% say they are "quite optimistic," and a tiny 1.5% are "very optimistic."
Government's Response to Business Concerns
Accordingly, the Government vowed to consult not only unions but also business leaders regarding every change in the law about workers' rights, assuring all parties that they were "pro-worker and pro-business.".
A spokeswoman for the Department for Business & Trade said: "Our new industrial strategy and forthcoming International Investment Summit will help deliver long-term, sustainable growth across every region of the UK by attracting vital investment. This will be key to sustaining our growth in the G7 and creating more opportunities for everyone."
Finding a Balance Between Growth and Fairness
The Government has also highlighted its "Make Work Pay" scheme, a vision to ensure the appropriate environment for business to grow while workers get their due. They believe this delicate balance can be sought properly through cooperation between businesses and civil society in general.
Hard Times Ahead
No doubt, the road to stability in businesses will be rocky, with UK businesses facing potential tax increases, as well as new rights for workers. Business leaders want clearer plans and policies from the Government to help their companies plot a path through these uncertain times. Whether confidence is built or concerns deepened in those who drive the UK economy will depend on the strategies of the Government alone.
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