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Confidence among business leaders has fallen to its lowest level in two years following Rachel Reeves' autumn budget, where she called on employers to shell out billions of pounds more in national insurance payments.
Accounting firm BDO's latest business trends report said it also saw the biggest monthly drop in sentiment among businesses since 2021, after the Budget.
Employers expect orders to fall, costs to rise and consumer confidence to suffer. The BDO Optimism Index fell 5.81 points to 93.49 this month, the lowest level since January 2023.
Ms Reeves took aim at employers in her first budget, hitting them with higher taxes and raising the minimum wage.
Businesses face a 1.2 percentage point rise in employers' national insurance, up to 15 per cent, in a bid to raise £25bn. Ms Reeves also lowered the threshold on which tax is paid.
“I know it is a difficult choice,” he said when presenting the Budget last month, adding: “I do not take this decision lightly.”
The grim figures come as the boss of Iceland's discount supermarkets urged business owners to stop “gloating” and “complaining” after the Budget. He admitted the Treasury's position was “tough” but that businesses must adapt.
He told the Daily Telegraph: “There have been a lot of complaints from companies. But in reality, what matters much more is how the Government invests for the future and looks for long-term solutions, such as skills development, industrial strategy and the review of business rates. It is more important how they spend all the money they raise.”
But the effects of rising costs are already being seen. Domino's Pizza Group said it faces a cost increase of £3m a year due to Ms Reeves' decisions.
“As with other major employers in the UK, the recent UK Budget has significantly increased the cost of labor for both Domino's Pizza and our franchise partners, who are particularly affected,” the company said. in a statement to the London Stock Exchange.
In a separate report, KPMG said companies are slowing hiring as they count the cost of tax increases.
The report, which was also written by the Recruitment and Employment Federation, said demand for staff fell at the fastest rate since the Covid lockdowns. The low hiring rate also limited salaries, he said.
Jon Holt, group chief executive and senior partner at KPMG in the UK, said: “Businesses are having to weigh up the prospect of rising employee costs post-Budget, which has led to an accelerated slowdown in hiring activity in all areas.
“While the data already pointed in that direction, permanent placements last month saw their steepest declines in more than a year, and temporary positions also saw a fifth consecutive decline.”
Economist Julian Jessop said: “Hopefully this will be only a temporary pause: employer confidence could recover as slower wage inflation encourages the Bank of England to continue cutting interest rates, and as increases of public spending in the Budget begin to boost growth.
“But this is all very uncertain and looks pretty bleak for now.”
Kaley Crossthwaite, partner at BDO, said: “December marks the end of a difficult couple of years for businesses and the fall in business confidence this month is not a surprise given the significant challenges they continue to face.
“While it is encouraging to see businesses already planning ahead and finding efficiencies to manage rising costs, significant growth in 2025 will only come with targeted support from the Government.
“Policies that address the ongoing effects of inflation and pricing challenges are vital.
“Resilience remains a defining characteristic of UK mid-sized businesses and, with the right support, they are well positioned to overcome these challenges, create jobs and drive growth.”
