Remember when lockdown tanked business sentiment? We’re nearly back there. Rachel Reeves’ Budget has left UK business leaders feeling worse about their prospects than at any point since April 2020, and the numbers are brutal.
The Institute of Directors (IoD) just released its monthly survey, and it’s not a pretty read. Business confidence in their own organisations plummeted from -5 to -20 immediately after the Budget. Directors aren’t just worried, they’re bracing for impact. Why? The Budget delivered tax hikes without the growth policies businesses were hoping for.
Why Business Leaders Are Spooked
The IoD survey paints a grim picture. Overall confidence in the UK economy barely budged, sitting at -72 (up just one point from -73). Four in five business leaders viewed the Budget negatively—hardly a vote of confidence for the Chancellor’s first major fiscal statement.
Here’s what’s really concerning: this isn’t just pessimism. It’s translating into real decisions. Investment intentions crashed to -39, the second-lowest reading on record. Revenue expectations turned negative at -8 for the first time since September 2020. Companies aren’t just worried, they’re pulling back.
The Employment Tax Problem
Labour’s mission is economic growth, but the Budget might be working against that goal. Headcount expectations dropped to -29, hovering near pandemic levels. That’s employers planning to hire fewer people, not more.
What’s driving this? Business leaders point to three main culprits:
- Poor UK economic conditions (top concern)
- Rising employment taxes
- Higher business taxes
The £25bn National Insurance hike for employers is hitting particularly hard. Cost expectations remained stubbornly high at 82, suggesting businesses see tax rises but little relief on the horizon.
Growth Policies? What Growth Policies?
Here’s the kicker: the Office for Budget Responsibility (OBR) said none of the growth-focused policies in Reeves’ Budget would actually boost output. Growth forecasts were downgraded across the entire forecast period. Businesses noticed.
Anna Leach, chief economist at the IoD, put it bluntly: “The message from this Budget is that work remains to be done to lift the UK’s growth prospects.” Translation: we’re not there yet, folks.
Even the typically optimistic Lloyds Bank business barometer showed hiring intentions and trading prospects dropping in November. When the sunny outlook providers turn cloudy, you know sentiment has shifted.
What Happens Next?
Businesses are essentially frozen, waiting to see if conditions improve. Investment plans are shelved. Hiring is on hold. The Budget aimed to curb the cost of living and set conditions for lower borrowing costs, but it hasn’t convinced the people actually running companies that better times are ahead.
The concern? If businesses don’t invest and hire, growth won’t materialise, creating a self-fulfilling prophecy that keeps the UK economy stuck in low gear.
The bottom line: Rachel Reeves needed to inspire confidence. Instead, she’s left business leaders more nervous than they’ve been since the pandemic. With investment and hiring intentions at multi-year lows, the government faces an uphill battle to deliver the growth it promised.
FAQ
Q1: Why did business confidence drop so dramatically after the Budget?
A: The Budget delivered significant tax increases, particularly on employment, without clear growth-boosting policies to offset them. Business leaders saw costs rising without a credible plan to improve economic conditions or increase revenues.
Q2: What was the most concerning metric from the IoD survey?
A: Investment intentions dropping to -39 stands out—it’s the second-lowest on record. When businesses pull back on investment, it directly undermines economic growth and signals deep pessimism about future prospects.
Q3: How does this compare to pandemic-era confidence levels?
A: Several metrics are approaching or matching April-May 2020 levels, when the first lockdown devastated the economy. Confidence in own organisations at -20 is the second-lowest since April 2020, while headcount expectations at -29 mirror pandemic lows.
Q4: What are businesses most worried about right now?
A: Poor UK economic conditions top the list, followed by rising employment taxes and business taxes. The £25bn National Insurance increase for employers is a particular pain point that’s dampening hiring plans.
Q5: Can the government turn business sentiment around?
A: Possibly, but it’ll require demonstrable growth policies and improvements in economic conditions. Business leaders need to see a clear path to higher revenues and better trading conditions—not just higher costs and optimistic forecasts.
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Effective Date: 15th July 2025
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