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UK businesses brace for Chancellor Reeves' Budget amid tax and growth concerns
British business leaders are approaching Chancellor Rachel Reeves' second Budget with caution, still grappling with the fallout from last year's £25 billion National Insurance hike and a minimum wage increase that outpaced inflation. With economic growth stagnating at just 0.1% in Q3 2025, firms fear further financial strain as Reeves prepares to unveil new fiscal measures on Wednesday.
Fragile confidence ahead of fiscal announcements
Boardroom sentiment has deteriorated in recent months, with nearly all executive confidence indicators flashing warnings. Capital Economics projects the Budget will shrink GDP by 0.2% in 2026-a significant blow to an already sluggish economy. Yet analysts suggest the Bank of England may offset some pressure by cutting interest rates, potentially stimulating borrowing and spending.
A senior government adviser told the BBC that key economic indicators, including inflation, are expected to improve next year-a narrative Reeves is likely to emphasize. The chancellor's challenge: balancing revenue needs with business stability after last year's abrupt tax increases.
Calls for stability over 'death by a thousand taxes'
Rain Newton-Smith, director-general of the CBI, urged the government to prioritize "stability as the only road to growth," warning against piecemeal tax hikes. Addressing the CBI's annual conference, she advocated for "one or two broad tax rises" over incremental burdens that stifle investment. Business Secretary Peter Kyle echoed this stance, pledging to foster a "pro-business, pro-growth Britain" through targeted policies, including lower electricity bills for 7,000 firms and focused lending in high-potential sectors.
"Actual growth comes from enterprise and wealth creation. This week's Budget will embed fair, necessary choices to unlock that potential."
Peter Kyle, Business Secretary, at CBI conference
Potential relief-and new pressures-on the horizon
Business rates reform: Reeves may address soaring bills by making pandemic-era discounts (slashed from 75% to 40% in 2024) permanent for small businesses, funded by higher rates on large retail properties. Critics argue current "cliff edges" penalize expansion.
Windfall taxes: The oil and gas sector, facing a combined 78% tax rate (40% baseline + 38% windfall levy), is lobbying for relief as oil prices slump. The levy, set to expire in 2030, could be phased out earlier to stem North Sea investment declines and job losses.
Bank profits: While direct tax hikes on banks may clash with the pro-growth agenda, the Treasury might reduce payments to commercial banks tied to pandemic-era bond losses-a de facto "stealth tax."
Controversial Employment Rights Bill
The proposed bill, granting day-one sick pay and unfair dismissal protections, has drawn ire from employers. Newton-Smith called for a "change of course," while Conservative leader Kemi Badenoch warned it would enable tribunal claims "before new hires find the toilets." Kyle defended the plan, insisting implementation would balance worker and business needs.
Consumer spending and pension trade-offs
Reeves is expected to encourage household spending, possibly via another above-inflation minimum wage hike-a move that could ripple through payrolls. Meanwhile, a cap on salary sacrifice schemes (used for pre-tax pension contributions) may reduce workplace pension generosity, affecting both employers and employees.
Mixed signals on investment
A Barclays survey reveals 55% of business leaders are delaying decisions until post-Budget, though 43% anticipate increasing investment afterward-hinting at pent-up optimism. Yet confidence remains brittle. Reeves' ability to reassure without overburdening firms may hinge on her framing of the Planning and Infrastructure Bill, touted as a "game-changer" for removing growth barriers.
"The government must show it's listened. Last year's Budget left scars-this one needs to heal them."
Unnamed FTSE 100 CEO, speaking to the BBC
