Business Confidence in the Face of Rising Costs

Business confidence plays a crucial role in economic growth, affecting investment and employment rates. However, the current landscape has left business leaders feeling overwhelmed by the wave of new costs coming their way. In addition to the significant £25bn increase in National Insurance costs, there is a proposed package of workers’ rights expected to cost around £5bn. This sudden financial burden has sparked concerns about job cuts and price hikes across industries.

During the recent CBI conference, director-general Rain Newton-Smith highlighted how these mounting costs are causing businesses to reevaluate their investment, hiring, and expansion plans. The impact of these financial burdens on profits, competitiveness, and growth cannot be ignored, leading to a sense of damage control among businesses that have already weathered tough economic conditions.

CBI chair Rupert Soames raised concerns about conflicting government policies that aim to boost employment while simultaneously increasing the cost and risk of hiring through Budget changes and employment rights legislation. The Federation of Small Businesses also criticized the lack of evidence supporting the workers’ rights legislation, cautioning against imposing additional costs and risks on small employers based on weak impact assessments.

While the government argues that improved employment rights will drive productivity gains, skeptics question whether these outcomes will materialize. Recent economic indicators, such as slower GDP growth, weakening business optimism, and rising cost inflation, have raised doubts about the effectiveness of current policies.

Despite these challenges, some economists remain optimistic about future growth prospects. Pantheon Macroeconomics predicts an acceleration in growth in the final quarter, with other experts expecting modest growth over the winter months and a boost next year from the Budget. The EY ITEM Club forecasts steady growth in 2025, supported by gains in real incomes that are expected to drive consumer spending.

However, the fragility of private sector confidence underscores the importance of bolstering, rather than undermining, business sentiment. As businesses navigate the uncertain economic landscape, policymakers must strike a balance between promoting growth and maintaining a supportive environment for businesses to thrive.