UK business confidence has reached its lowest point in nearly two years, according to the latest Business Trends Report by BDO. The BDO optimism index fell by 5.81 points to 93.49 in November, marking the steepest month-on-month decline since 2021. Firms are grappling with rising costs, reduced customer confidence, and falling orders, leading to a potential economic contraction. Kaley Crossthwaite, partner at BDO, said: “The drop in business confidence this month is not a surprise given the significant challenges they continue to face.” The report also indicated a decline in employment, reversing previous growth, highlighting ongoing labour market challenges.

Research by HSBC reveals that two-thirds of small and medium enterprises (SMEs) are unable to grow to meet customer demand in 2024, with 69% expecting similar challenges in 2025. The survey highlights that rising business costs and difficulties in accessing finance are significant barriers. Martin McTague, national chairman of the Federation of Small Businesses, said: “At the moment, it’s far from smooth sailing for many small businesses who are facing rising costs, difficulties accessing finance and cashflow issues.” Additionally, nearly a quarter of SMEs lack the resilience to survive financial shocks, with 53% holding less than £50,000 in cash reserves. Tom Wood, HSBC UK’s head of business banking, noted the importance of building resilience while increasing profits to meet demand.

Business rates are projected to generate £220bn over six years, with £40bn expected in the 2029-30 year alone, surpassing fuel duty and capital gains tax, according to the Office for Budget Responsibility (OBR). Despite extending relief for the retail, leisure, and hospitality sectors, the Government plans to implement a ‘permanent’ cut for these sectors, funded by a higher levy on larger properties valued over £500,000. Critics, including John Webber from Colliers, argue this approach unfairly penalises larger retailers, stating: “What they’re also doing is capturing any High Street retailer who has got a big shed.” The reduction in relief from 75% to 40% raises concerns for small businesses, with fears that many may struggle to survive before the new system is introduced in 2026-27.

Sir Keir Starmer has indicated that further tax increases may be on the table should “unforeseen” global events prompt the need to raise more money. In a recent interview with BBC Breakfast, the Prime Minister stated: “What I can’t do is say to you there are no circumstances unforeseen in the future that wouldn’t lead to any changes at all.” Despite this, he said it was not his intention to impose more tax rises, having already made significant decisions in the recent Budget, which included a £40bn tax increase primarily through higher National Insurance contributions. Sir Keir acknowledged the need for stability and also expressed confidence that living standards would not decline further, aiming for immediate improvements for as many people as possible.

HM Revenue & Customs has collected £916m from interest on late tax payments since the pandemic, with figures showing a significant increase from £113m in 2020-21 to £414m in 2023-24. Chris Etherington from RSM UK said: “Charging taxpayers an interest rate which is tagged to the base rate, with extra on top, has proved very lucrative for the Treasury.” The rise in interest rates and the freeze on income tax thresholds have pushed more individuals into higher tax bands, necessitating tax returns. The late payment interest rate is currently 7.25%, expected to rise to 8.75% next year, potentially generating an additional £1.2bn for HMRC by 2029-30. Taxpayers are advised to contact HMRC if they struggle to pay their bills, as they may qualify for a Time to Pay plan.

Gatwick chief executive Stewart Wingate has warned that airport business rate changes introduced by the Tories risk deterring investment. The changes would collectively add more than £1bn to the industry’s tax bill with the huge jump coming after the Valuation Office Agency (VOA) changed the way it assesses airports to look at how much they earn. Mr Wingate said the increase put the airport’s plans to open a new runway in jeopardy. “It’s important that we have a fair tax environment and we do need to have this business rates issue sorted at the earliest opportunity,” he said. “We need to have investible conditions for our international shareholders.”

Labour’s employment rights overhaul could force employers to sack sick staff if they are repeatedly ill or are off sick for long periods. According to the Recruitment and Employment Confederation (REC), new statutory sick pay (SSP) rules will push up costs for businesses already under strain from minimum wage hikes and an increase in NICs for employers. Shazia Ejaz at the REC said: “We urge the Government to set the rate of SSP at a level that encourages employers to retain staff, rather than having to move swiftly to capability-based dismissal.” She added that 60% of the cost burden from the new rules will fall on small businesses while agency workers would be particularly hard hit by the plans, proposed by Deputy Prime Minister Angela Rayner. Meanwhile, the Regulatory Policy Committee, an independent government body, has said Labour’s workers’ rights package was “not fit for purpose” and ministers had failed to properly assess how the extra costs would be passed on to employees. The Government’s own impact assessment estimates the changes will cost businesses at least £4.5bn a year.

Data from Employment Hero’s SmartMatch Salary Report indicates a significant reaction from employers following the Chancellor’s Autumn Budget, with many cutting staff. Rachel Reeves’s £25bn National Insurance increase, set to take effect in April, has drawn criticism from businesses, which will face a 1.2% rise in costs per employee. The report highlights a 1.2% contraction in full-time employment in November, particularly affecting younger workers, with a notable 4.8% drop in full-time jobs for those aged 18-24. Kevin Fitzgerald, UK managing director of Employment Hero, stated: “These figures show the disastrous decision to tax employment is already costing jobs,” urging the Government to reconsider its policy to prevent long-term damage to employment, especially for young people entering the workforce.

The demand for staff has reached its lowest point in four years, as the Budget tax increases cast a shadow over the pre-Christmas jobs market, according to the latest report from KPMG and the Recruitment and Employment Confederation. The vacancies index dropped from 46.1 to 43.9, indicating the sharpest contraction in job openings since August 2020. Jon Holt, group chief executive at KPMG, noted that businesses are “having to weigh up the prospect of increasing employee costs,” leading to a slowdown in hiring. Seasonal recruitment has also suffered, with postings for seasonal roles down 39% compared to last year. Despite more jobseekers looking for short-term work, overall job postings remain 14% below pre-pandemic levels. Retail hiring has declined significantly, with major chains like Tesco and Sainsbury’s planning to hire fewer temporary staff than in previous years.

The Government’s bank referral scheme, aimed at improving access to finance for small businesses, is facing criticism for its ineffectiveness. According to Funding Xchange, one of the platforms involved, “94% of businesses referred by banks failed to secure finance” due to being deemed “not fundable.” Since its launch in November 2016, the scheme has facilitated only 5,387 deals worth approximately £128m, with an average deal size of £24,000. The analysis revealed that many businesses have “readily fixable” issues that could improve their chances of securing funding. The Treasury acknowledged that the proportion of businesses benefiting from the scheme has been “smaller than expected,” highlighting the need for better support and advice for small business owners.

The recent merger between Aviva and Direct Line, valued at £3.6bn, is set to create the UK’s second-largest insurance company, with a market value of £16.5bn. Aviva’s chief executive, Amanda Blanc, has described the acquisition as a significant step, but experts warn that while shareholders may benefit, consumers could face higher premiums. The Telegraph’s Matthew Lynn reports that the cost of motor insurance has surged by 82% since May 2021, raising concerns about reduced competition in the market. Additionally, the merger may stifle innovation, as resources are diverted to integration rather than developing new products. Despite substantial investment in insurtech, Lynn says the focus on cost-cutting in mega-mergers could hinder advancements in the industry, leaving consumers and the economy at a disadvantage.

At a meeting with EU finance ministers in Brussels today, Chancellor Rachel Reeves will advocate for a more business-like relationship with the European Union to enhance Britain’s growth prospects. She will point to the need for a relationship “built on trust, mutual respect, and pragmatism,” aiming to move past the “fractious” dealings of the previous government. Reeves will focus on joint challenges, including the war in Ukraine, and the importance of free trade to improve economic competitiveness. She will add that a closer economic relationship is beneficial for both the UK and the EU: “It’s about improving both our growth prospects.” The Government plans to publish a trade strategy in 2025 to identify areas for cooperation, despite maintaining that there will be no return to the single market or customs union.

Global banks are reassessing their relocation strategies from London to mainland Europe due to political instability in France and Germany. A senior banking source said: “With France and Germany a ‘mess’, the UK now ‘doesn’t look so bad’.” Although banks initially shifted operations to cities like Paris and Frankfurt post-Brexit, the anticipated exodus has not materialised as expected. The number of planned relocations dropped from 12,500 in 2016 to 7,000 by 2022, according to EY.

The UK economy is projected to experience slower growth than previously anticipated, with the Confederation of British Industry (CBI) forecasting a mere 1.5% increase in 2025, down from 1.9% predicted earlier. This downgrade is attributed to the impact of the Chancellor’s recent Budget, which has introduced higher employment costs and £70bn in additional public sector spending, potentially stifling private investment. Louise Hellem, CBI’s chief economist, stated: “The Government’s focus on stability is welcomed by businesses… but there is work to be done to get momentum back into the economy.” The CBI also anticipates a decline in business investment by £6bn in 2026, primarily due to government spending. Overall, the outlook remains cautious as firms grapple with rising costs and pressures on profit margins.