Business conditions stall as tax anxiety grows

By Ana Christie, CEO, Sussex Chamber of Commerce.

Vital insights from the UK’s largest independent business survey, conducted by the British Chamber, have been shared with the Government. The latest figures show that, on the domestic front, many businesses are increasingly anxious about the direction of economic policy, and taxation has now become their primary concern. The major escalations in the Middle East conflict will also be a significant factor.

This month’s Budget will be a critical juncture. Businesses will need to see action on solving the investment puzzle, supporting global trade, particularly with the EU, and easing tax anxiety.

Some key survey findings:

• Following improvements to business conditions in the first half of 2024, key indicators stalled or declined in Q3 – with manufacturing suffering the most.

• Taxation is now more of a concern than inflation for business, cited by nearly half of firms (48%).

• Business confidence has declined slightly, with 56% of firms expecting an increase in turnover in the next twelve months.

• The proportion of firms expecting to put up prices has levelled off (39%) after falls earlier in the year.

• Most firms (77%) are still not increasing levels of investment

Taxation now the primary external concern

Forty-eight percent of responding firms say taxation is now more of a concern than three months ago, compared with 36% of businesses in Q2, with the professional services (53%) and construction sectors (51%) more likely to cite this. 

Concern about other external issues continues to ease. Forty-six percent of firms say they are more worried about inflation compared to last quarter.

Business conditions struggling

The percentage of respondents reporting increased domestic sales has fallen to 35%, compared to 38% in Q2. 43% reported no change and 21% of firms said they had seen a decrease in sales.   

There were some sectoral differences with 27% of firms in manufacturing and retail reporting a fall in sales in Q3. Meanwhile, 42% of marketing, media and advertising businesses said they had seen a rise.

Business confidence flatlines

Fifty-six percent of companies expect to see their turnover increase over the next 12 months, a slight decrease from 58% in Q2. Twenty-nine percent expect no change and 15% expect to see turnover decline. 

Profitability confidence has also fallen, with 48% of businesses expecting profits to increase in the next year. That compares to 51% in Q2. 32% expect no change and 20% of respondents believe their profits will fall (compared with 17% in the previous quarter).

Most firms still not increasing investment

Only 23% of responding businesses say they increased investment levels (new plant, machinery or equipment bought or rented) over the last three months. That’s down from 25% of firms in Q2. 59% say investment has remained the same, 18% reported a decrease.

Considerable sectoral disparities exist, with retailers least likely to report increased investment (21%). While 30% of production and manufacturing firms say they have increased investment over the last three months.

Expectation of price increases is levelling off

The proportion of firms expecting to raise prices remains the same as last quarter at 39%, after a rise earlier in the year. 58% of businesses say they expect prices to stay the same, and just 3% are expecting a decrease.

Labour costs continue to be cited as the main pressure for businesses, cited by 66% (67% in Q2). The issue is more significant for transport, logistics or storage with 76% reporting it as a challenge, and 74% of firms in construction and hospitality sectors.

The national business survey is a timely reminder of the real challenges businesses across our Chamber network are facing.  With speculation rife about the tax impact of this month’s crucial Budget, businesses are clearly anxious. They understand the fiscal backdrop the Chancellor is facing and the need for the Government to address public finances. However, that must not be at the expense of investment and growth. While most firms are still expecting increased turnover over the next 12 months, confidence has dipped slightly. Sales and cashflow are also being hit, with the impact on manufacturers particularly concerning. Our message to the Government is clear. Business stands ready to work in partnership to overcome challenges and help grow the economy. But an effective industrial strategy and a competitive tax landscape are essential to getting Britain booming again.