Firms Delaying Hiring and Investments Ahead of Upcoming Budget

Recent reports indicate that many firms are currently "pausing" on hiring and holding off investments as they await clarity on impending changes in government policies related to taxes. A prominent business organization, the Confederation of British Industry (CBI), has expressed concerns regarding this trend.

Concerns Over Upcoming Budget

Ben Jones, lead economist at the CBI, stated that several businesses have chosen to delay key decisions until they receive clearer signals about the new government's economic approach. The government is scheduled to reveal its tax and spending plans in a Budget announcement on 30 October.

The CBI's comments come alongside data showing that the UK economy grew by 0.2% in August, powered by recovery in construction and strong performances from accountancy, manufacturers, and retail sectors. Despite this growth, the Office for National Statistics (ONS) has cautioned that the overall economic outlook remains weak.

Slowing Economic Growth

Liz McKeown, director of economic statistics at the ONS, noted that while there was a slight recovery in August, the broader trend indicates a deceleration in growth compared to the earlier part of the year. Economists emphasize that businesses are looking for clear guidance on government strategies, especially with an International Investment Summit taking place soon in London.

The CBI, representing around 170,000 companies, believes the government has an opportunity to bolster economic growth by demonstrating a solid plan for supporting business investments leading up to the Budget.

Speculation About Tax Increases

Recent surveys by the CBI reveal that businesses might have slowed down decision-making processes in September due to speculation surrounding potential announcements in the forthcoming Budget. Prime Minister Sir Keir Starmer has already indicated that the Budget may be "painful," with the government acknowledging that some taxes are likely to increase.

This Budget will mark a crucial moment for the government to outline its fiscal policies, particularly as it faces challenges such as higher national debt from the pandemic, rising interest rates, and inflation that has just started to stabilize.

Potential Tax Decisions

The debate over which taxes might be raised has intensified, particularly as the government has pledged not to burden "working people" with higher taxes and has ruled out increases in VAT, National Insurance, or income tax. There are rumors about potential hikes in capital gains tax, applicable on profits from asset sales, alongside options such as reducing pension tax relief or increasing fuel duties.

Uncertainty also surrounds Labour's commitment to not raising National Insurance, especially regarding the portion paid by employers. Critics argue that higher National Insurance contributions amount to additional tax burdens on companies, which may stifle growth.

Government's Focus on Growth

Chancellor Rachel Reeves is focused on revamping borrowing rules to unlock more spending for significant projects aimed at stimulating the economy, but she has also made it clear that additional tax increases will still be implemented.

Reeves emphasized that boosting the UK’s economy is a top priority, essential for enhancing funding for the NHS and improving the well-being of working populations.

Calls for a Shift in Narrative

According to Anna Leach, chief economist at the Institute of Directors, the government should use the upcoming investment summit and Budget as an opportunity to shift the conversation away from national debt. Focus should instead be on fostering growth and creating a robust economy for the future, which would support sustainable public finances.

Recent Economic Performance

The ONS releases monthly updates on GDP (gross domestic product), with greater emphasis placed on the three-month performance trend. Due to a lackluster summer, gradual growth of just 0.2% was reported from June to August compared to previous quarters. The UK had entered a mild recession by the end of the previous year, with two consecutive quarters of economic contraction prior to recovering in early 2024.

Major Company Investments

As the investment summit approaches, Scottish Power's owner, Spanish energy firm Iberdrola, has announced plans to double its UK investment from £12 billion to £24 billion over the next four years to enhance the nation’s electricity grid for expanding connectivity to homes and businesses. The company has emphasized the importance of speeding up the planning approval process to enable quicker project completions.

Iberdrola has committed to transitioning the UK away from fossil fuels in electricity production by 2030, although critics express skepticism regarding the feasibility of this timeline, fearing rising costs for consumers in the process.

Ultimately, there are mixed feelings among citizens, especially in rural areas where construction for new energy infrastructures is debated. However, the company asserts that the volatility of recent energy bills is tied to fluctuating gas prices and believes a transition to wind energy will lead to lower costs over time.

hiring, budget, investment