Crushing tax burden sends confidence to 13-year low

Businesses are battling soaring inflation, higher borrowing costs and falling consumer demand

BUSINESSES are at their most pessimistic about the economy since the depths of the Great Recession amid a “nightmare” of tax rises, soaring prices and lacklustre growth prospects, a survey shows.

Companies across the UK are also facing chronic labour shortages, while many are finding it increasingly difficult to borrow, according to the Institute of Chartered Accountants in England and Wales (ICAEW).

The problems have left business confidence at its lowest since 2009, the accountancy body said, with construction companies, high street retailers and manufacturers the hardest hit.

Suren Thiru, director of economics at the ICAEW, said a six percentage point increase in corporation tax in April and less energy help from the Government means many companies are facing a “cliff edge” as consumers tighten their belts and the economy slows.

He said: “Businesses are starting 2023 at a really weak point financially.

“The concern is once these taxes start to come in and you also start to see the real impact of interest rate rises over the past year, that could really create a cliff edge moment for a lot of businesses.”

While the Bank of England and Office for Budget Responsibility are still predicting a recession this year, official data yesterday provided fresh hope that surging price rises are easing as producer price inflation continued to slow in December.

Input prices – which measure the cost of materials bought by UK manufacturers – rose by 16.5pc in the year to December. This is down from 18pc in the year to November and a high of 24.6pc last summer, according to the Office for National Statistics.

Factory gate inflation, also a good barometer for where consumer costs are heading, eased to 14.7pc in December, from 16.2pc.

Traders are now pricing in interest rate cuts before the end of this year to support economic growth. Interest rates are expected to peak at 4.25pc this spring, from a current rate of 3.5pc, before falling back to 4pc.

Mr Thiru said the Government had failed to address “long standing issues” around investment, skills and productivity that would get the economy growing again. “That’s sadly lacking at the moment,” he said.

It came as a separate report warned that slow and unpredictable decisions by regulators were tarnishing Britain’s competitiveness on the global stage.

City bosses claimed the Financial Conduct Authority and Prudential Regulation Authority took too long to vet finance firms, potentially discouraging investment.

Lobby group Thecityuk, which represents businesses in the Square Mile, is calling on the watchdogs to speed up the authorisation process and put more resources into clearing backlogs.

A source close to the FCA said the regulator is working hard to clear backlogs of authorisations.

A Bank of England spokesman said it was already taking “a number of steps” to speed up processes.