Business leaders are experiencing a significant drop in confidence as they prepare for the upcoming autumn budget, amid concerns over potential tax hikes and more stringent employment regulations.

The economic confidence index from the Institute of Directors, which gauges the optimism of business leaders regarding economic conditions, fell substantially from -12 in August to -38 in September. The index also reflected a decrease in investment intentions among directors, which plummeted over the summer from 36 in July to 23 in August, eventually dipping to -6 in September.

In addition, a recent growth indicator from the Confederation of British Industry (CBI) showed that private sector businesses anticipate no changes in their activity levels over the next three months. After seven months of positive growth expectations, interim deputy chief economist at the CBI, Alpesh Paleja, remarked that the outlook for the remainder of the year has “deteriorated.”

Prime Minister Sir Keir Starmer hinted at imminent tax increases, stating that the nation’s fiscal situation was “worse than we ever imagined” and warned that those with greater financial capacity should shoulder more of the tax burden.

According to Anna Leach, chief economist at the Institute of Directors, ongoing concerns about potential tax increases, workers’ rights costs, international competitiveness, broader cost pressures, and the overall trajectory of UK economic growth are major issues for members.

Leach added, “There are several policy announcements on the horizon that could help create a more favorable environment for growth and investment, potentially improving business confidence.”

In the coming weeks, it is expected that the government will unveil more information on its industrial strategy, a business tax roadmap, and a possible revision of fiscal rules to acknowledge public sector investment’s contribution to the UK’s asset base.

The decline in business confidence follows a drop in consumer confidence, as individuals anticipate tax rate increases and limitations on winter fuel payments. The GfK consumer confidence index decreased from -13 in August to -20 in September, with Neil Bellamy, director of consumer insights at GfK, noting that consumers are “nervously awaiting” the government’s first budget set for October 30.

Paleja emphasized the need for the government to leverage the upcoming budget to drive economic recovery and instill confidence in businesses to invest. “Advancing reforms in planning, releasing a comprehensive business tax roadmap, and outlining a clear industrial strategy would contribute significantly to this effort,” he stated.