As the UK Government prepares for the upcoming Budget, new polling from the Centre for Growth highlights a disconnect between government priorities and business expectations.
The survey of 750 UK business leaders suggests that, despite most business leaders (74%) saying they have paid very close attention to Budget speculation, the government is yet to convince business leaders of the need to build significant fiscal headroom now and the reasons why. They would much rather see a clear focus on cost pressures and competitiveness, which remain top of mind.
Key findings
Low awareness of productivity pressures on public finances
- Fewer than one in five (18%) business leaders are aware that the Office for Budget Responsibility’s productivity downgrade has contributed to the potential £30bn fiscal hole.
- Businesses are most likely to believe that higher interest rates are to blame, due to the cost of borrowing increasing — with 33% choosing this option.
- After this, they are most likely to believe that higher spending on benefits and public services is the reason — with 30% choosing this option.
Leaders don’t buy the need for greater headroom
- Businesses are more than twice as likely to favour limited headroom via a small fiscal buffer (48%) than they are to support government generating much greater headroom (20%) now, even if this meant a lower risk of future tax rises and spending cuts.
- Meanwhile, 29% of business leaders felt they should raise the bare minimum to meet the current shortfall, even if this increases the likelihood of future tax rises and spending cuts.
Businesses are struggling with cost pressures
- 80% of business leaders said their operating costs had increased, with energy costs remaining business leaders’ biggest concern ahead of the Budget.
- Two-thirds (67%) of businesses said that wages have led to increased expenditure over the last three months, while 66% said that taxation has increased their input costs.
- 93% of those business leaders who said their costs have increased said they would pass on some of those costs to customers, and 67% of all businesses expected to raise prices in the next three months.
What businesses want from the Budget
- 49% of business leaders said the Budget should focus on reducing energy costs for businesses and households — the most popular option when asked to select their top three.
- 38% say the government should boost employment by reducing the cost of hiring workers.
- 38% want incentives for business investment via reforms to corporation tax or R&D incentives.
Commenting on the findings, Raoul Ruparel, Director of BCG’s Centre for Growth, said:
There is an understandable focus on reassuring bond markets in this Budget, but the government also needs to bring business with it to avoid a hit to business confidence as we saw in both the Spring Statement this year and Autumn Budget last year.
As it stands, our survey suggests the government is yet to convince business leaders of the need to build greater fiscal headroom and explain why the situation has (in their eyes) deteriorated so much. Given continued economic uncertainty this year, business leaders are understandably focused on measures which can ease their rising cost pressures and help to give them more space to invest and grow. They will be watching keenly for any supply side and regulatory changes alongside the key tax and spend decisions in the Budget.
Read more on how the UK could turn its productivity gap into a competitive advantage here.
For further information on the findings, please contact Graham Ackerman.