Business confidence has declined following the announcement of Labour’s budget changes in October, according to a survey conducted by the Confederation of British Industry (CBI).
The budget outlines a significant increase in the employer national insurance (NI) rate, raising it from 13.8 per cent to 15 per cent from April 2025, alongside a reduction in the secondary threshold – the income level at which employers start paying NI – from £9,100 to £5,000. These changes mark one of the most substantial shifts in employer tax obligations in recent years.
As a result, these sweeping adjustments are projected to generate an additional £122.3bn in tax revenue over the next five years. Of this, £40bn is expected to come directly from UK businesses, forcing many companies to urgently focus on strategies to manage the impact without compromising operations or growth.
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Despite these efforts, the outlook remains challenging. The CBI’s latest Growth Indicator revealed that businesses were bracing for a 10 per cent decline in activity over the three months leading to February 2025, highlighting mounting pressures on the private sector.
This marks the first time this year that growth expectations have turned negative. In the services sector, business volumes were forecasted to drop by 13 per cent, with professional services down 7 per cent and consumer services experiencing a significant 33 per cent contraction, the weakest outlook in two years.
Distribution sales were also set to fall by 20 per cent, though manufacturers anticipated a 9 per cent increase in output.
Private sector activity declined further in the three months to November, falling by 13 per cent, compared to a 4 per cent dip in the three-month period ending in October.
“As we head into 2025, expectations for growth have taken a decisive turn for the worse,” said Alpesh Paleja, CBI interim deputy chief economist. “Our surveys suggest that anticipated activity was already weakening heading into the October budget, and the chancellor’s announcements have left businesses with even more tough choices to make.
“News that firms are planning to reduce headcount is a concern, with hiring intentions at their weakest since the tail end of the Covid-19 pandemic. This could be an early sign of the impact of higher labour costs from the upcoming rise in employer NICs, and the uprating in the national living wage.”
Lloyds Business Barometer shows mixed confidence
A separate study from the Lloyds Business Barometer also revealed a dip in business confidence in November 2024, with its index falling by three points to 41 per cent.
While this remains above the long-term average of 29 per cent, sentiment about the economy was mixed. Half (52 per cent) of respondents were more optimistic than three months ago, but 26 per cent expressed less confidence – up from 20 per cent in October.
Businesses showed stronger confidence in their trading prospects, with 63 per cent predicting increased activity in the next year and only 8 per cent expecting a decline.
Hiring intentions dropped for the third time in four months, but half (52 per cent) of firms still planned to grow their workforce, compared to 17 per cent anticipating downsizing.
“In November, the overall confidence metric fell by three points for the third month running,” said Hann-Ju Ho, senior economist at Lloyds Commercial Banking. “This is the lowest level since June, but still above the survey’s long-term average, which is ultimately positive from a longer-term perspective.
“These results suggest that while firms have mixed views about the economy, they see their businesses in a good place to cope with any challenges they might face. Hiring intentions, although moderating this month, haven’t fallen by much, which is also positive news.”
IoD reports record-low business leader confidence
Similarly, a study from the Institute of Directors’ (IoD) Economic Confidence Index revealed worsening sentiment among business leaders, with confidence in the UK economy falling to -65 in November, down from -52 in October.
This marks the second lowest reading in the index’s history, only surpassed by the -69 recorded at the onset of the Covid pandemic.
Investment intentions fell sharply, dropping from -15 to -27, while headcount expectations plunged from -4 to -24, reaching their lowest level since May 2020.
The IoD survey also revealed that 83 per cent of business leaders expected higher employer NI contributions.
Of these, 50 per cent planned to limit wage increases, 44 per cent intended to raise prices and 43 per cent predicted job cuts. Some businesses aimed to offset costs through reduced margins or improved productivity, with more than half (57 per cent) planning to implement multiple measures.
“Far from fixing the foundations, the budget has undermined them, damaging the private sector’s ability to invest in their businesses and their workforces,” said Anna Leach, chief economist at the IoD.
“The clash between government intentions to address inactivity and the sharpness of the increase in employment costs is jarring. Likewise, welcome attempts to improve the environment for investment in the UK sit at palpable odds with a significant hit to profits, which will undermine private sector investment.”
She added that there was now a significant risk of growth stalling across the private sector because of the extent of the reset required by business. “There is particular concern being expressed by the social care and charities sectors, which feel they have no option but to reduce the services that they offer to vulnerable sections of the community,” Leach explained.
“The broader SME community, as well as family businesses, also feel especially exposed to multiple overlapping changes in the tax system.”
Obstacles for HR practices
“A fall in business confidence is not the only worrying factor when considering the financial pressures placed on businesses by the most recent budget,” said Karl Bennett, wellbeing director at Perkbox Vivup and chair of EAPA.
“Organisations are highly focused on their EBITDA (earnings before interest, taxes, depreciation and amortisation), where it’s most efficient to make cuts rather than rely on growth. For example, every £1 saved represents £1 added to the businesses EBITDA, whereas generating the same £1 through new business may require up to £7 in revenue.”
Bennett added: “My concern is that this saving may come at the expense of employee wellbeing support. It’s no surprise that more businesses are scrutinising the effectiveness of their wellbeing services. I’m often asked about the best ways to support employees’ mental health, but the truth is, this requires a thoughtful, considered approach.”
Ian Moore, managing director of Lodge Court, agreed, stating that the decline in business confidence for 2024 was set to pose significant challenges for HR practices, particularly in hiring and workforce planning.
“HR leaders must adopt proactive strategies to weather this uncertainty,” he said, suggesting that workforce planning pivot toward optimising resources rather than resorting to mass layoffs. “Upskilling, cross-functional roles or redeployment to align with shifting business needs are all strategies HR can consider,” he added.
Employee morale was another area of concern during this period, with Moore warning that it was “likely to take a hit”.
Beyond immediate concerns, Moore highlighted the strategic role of HR in advising leadership teams during uncertain times. “HR has a strategic role to play in advising leadership on balancing cost-saving measures with long-term talent retention,” he said.
This would involve ensuring that short-term decisions did not undermine the organisation’s ability to thrive when conditions improve.
For more details, refer to the CIPD’s submission to HM Treasury on the autumn 2024 budget and spending review