British business confidence fell during the third quarter, as tax concerns hit investment sentiment, according to a survey conducted by the Institute of Chartered Accountants in England and Wales (ICAEW). The survey’s results echo similar warnings from other business groups, ahead of the new Labour government’s first budget, scheduled for October 30.

Tax Worries Take Center Stage

The ICAEW Business Confidence Monitor dropped to 14.4 in the three months leading up to September, down from 16.7 in the previous quarter and marking the first decline in a year. ICAEW chief executive Alan Vallance highlighted that businesses are becoming increasingly troubled by the growing tax burden, with nearly 29% of surveyed companies citing taxes as a key challenge. This figure is among the highest recorded since the survey began in 2004, well above the long-term average of 16%.

Budget and Investment Sentiment

With Finance Minister Rachel Reeves warning of a potential tax increase to cover a £22 billion hole in the budget left by the previous Conservative government, businesses remain on edge. Although the government has ruled out increases to major taxes such as income tax and National Insurance, businesses are wary of potential rises in capital gains tax, which could impact their investment decisions.

Companies have already reduced plans for investment growth, with the ICAEW survey showing that firms now plan to raise investment by just 1.9% over the next 12 months, a slight decrease from the 2.1% projection in the previous quarter.

Summit to Boost Foreign Investment

Amid these concerns, Prime Minister Keir Starmer is set to host an international investment summit on October 14, aiming to boost foreign direct investment and support economic growth. Vallance emphasized the importance of providing businesses with stability and certainty during this period of uncertainty, particularly through reforms to VAT, business rates, and public and private investment.