UK business confidence falls to a record low as fears grow over Reeves’ tax hikes
Business confidence in the UK has plummeted amid growing fears around labour costs, inflation, and the possible introduction of new taxes next month.
The Institute of Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell to -74 in September 2025 from -61 in August.
This exceeds the recent record low of -72 in July 2025 and marks the lowest reading of the Index since its introduction in July 2016.
Business leaders’ confidence in their own organisations also fell to -7 in September 2025, from +1 in August. This matches the level recorded in November 2024 (-7).
On the biggest factors driving businesses’ outlook for costs over the year ahead (last asked in
March 2025), the top three remain unchanged in ranking. The most significant is labour costs, selected by 83% (up from 77% in March 2025), followed by supply chain inflation (34%, from 36%) and energy costs (32%, from 34%).
Commenting on the data, Anna Leach (Chief Economist at the Institute of Directors_ noted that business confidence has plumbed new depths in September, following a fleeting improvement at the tag-end of summer.
“Conditions worsened across the board, with cost expectations hitting a record high, driven notably by employment costs. Investment expectations declined again, although remained somewhat above the most recent low in November 2024.
“Meanwhile, headcount expectations continue to see-saw as the effects of the April rises in employment taxes and the living wage, alongside future concerns over employment regulations, continue to reverberate across companies.”
Leach noted that business leaders are calling for a reduction in government-generated costs – whether through a lower tax burden or lighter regulation.
Crucially, they are seeking a more coherent and credible plan for growth. Some positive steps are in place – including additional public sector investment and long-term policy plans, she said.
“But persistent fears that taxes on business and assets will rise are stifling confidence, holding back investment, and threatening growth and living standards.
“The Chancellor’s conference speech rightly reiterated the role that fiscal credibility has in providing the platform for growth. But we urgently need a genuinely growth-focussed Budget that has business at its heart, that delivers genuine policy coherence and stability, and reduces regulatory and tax burdens on business.”
