What do businesses want from the Budget?

In summary

• Soaring borrowing costs are making tax rises at the Autumn Budget ever more likely

• Our new survey shows significant support for some government policies, such as fiscal devolution and business rates cuts

• But it also shows unambiguous oppositions to some frontrunners for take hikes, such as capital gains tax

• Without care, the government may not only loss support, but hopes of the growth it wants to encourage

Good news at last: Figures released this week show that the UK economy grew faster than previously estimated in the second quarter. The Office for National Statistics revised its GDP growth figure from 0.4% to 0.5%. Combined with 0.6% growth in the first three months of the year, it confirms the UK as the G7’s fastest-growing economy.

Perhaps Rachel Reeves was right, after all, when she said, in her final Mansion House speech before being replaced as Chancellor, that Britain had “beaten the odds”.

If so, it hasn’t stopped the markets betting against it, however, and John Healey approaches his first Budget with soaring borrowing costs. A day before the ONS issued its revised figures, interest rates on 10-year bonds reached their highest since 1999. In mid-September, Deutsche Bank’s chief economist estimated that the fiscal headroom, which Office for Budget Responsibility calculated at £23.6 billion in March, had fallen to as little as £8.5bn. And things have worsened since.

An extra 0.1% increase in GDP is unlikely to be enough to solve the Chancellor’s problems.

Of course, the Chancellor could just accept a smaller fiscal headroom, but below £10bn is likely to prove unpalatable. Economists canvassed by the FT in September estimated the buffer could fall to about £14bn without sparking a sell-off in gilts.

It could also cut spending, and the commitment to scrapping the state pension triple lock is a move in that direction. But that money is earmarked for a new National Care Service, and the previous Prime Minister has already shown the difficulties of achieving wider welfare reform.

Consequently, tax rises are again on the cards and, with the government committed to its manifesto promises not to raise income tax, NI, VAT or corporation tax, a whole raft of possibilities are in the frame, from windfall to wealth taxes, land value taxes to inheritance tax reform.

Many businesses are gloomy – the CBI’s latest Growth Indicator shows firms expect activity to fall over the remainder of the year. “The outlook for growth remains subdued,” its Chief Economist said.

Our new Business Owners Sentiment Survey (The BOSS), published at the end of September, meanwhile, suggests the Budget is unlikely to cheer them up.

On the one hand, the government can take some comfort from the fact that there’s broad support for some of its flagship policies.

Fiscal devolution, giving local areas greater say in public spending, has been a major plank of Andy Burnham’s policy platform to drive “good growth in every postcode”.

The details of what this will mean in practice beyond a “stronger role” for local mayors have yet to be seen, but our survey suggests business owners support the policy in principle. Over two-thirds agree strongly (25%) or somewhat (43%) that giving regional or local government greater control over local taxes would make businesses more likely to invest, expand or create jobs in their area.

There’s also support for the closer relationship with the EU that the Prime Minister has vowed to build, beginning with the UK-EU summit later this year (after being postponed in July). Asked what the most powerful things the government could do to boost growth for UK businesses, reestablishing closer EU ties was right at the top of the table, along with support for AI and new technologies – another area Burnham has promised to make a priority.

Similarly, the survey suggests action on business rates (with the potential for more to come) will be welcome.

The problem for the government is that while there’s support for some of the broad goals, there’s been little detail on the precise policies to achieve them. Whether that support will endure when this emerges remains to be seen.

On business rates, for example, while the survey suggests enthusiasm for the government’s efforts to relieve the burden, it’s clear they’ve yet to go far enough. Asked about the main challenges facing their firms, business rate rises were the most common answer – even after July’s announcement of a cut in rates for pubs, social clubs and live music venues across England from April 2027.

And while support for those policies that business owners favour is likely to be nuanced when the reality is revealed, on the options for raising revenue it is far more straightforward: There’s strong opposition.

Take capital gains tax, for example – the “frontrunner” among potential tax increases in the Budget, as one paper put it. Quite apart from the uncertainties over what revenue a rise in rates would bring, it would be extremely unpopular.

Asked what tax hikes they fear most, CGT topped the list, equalled only by further increases in employer NI contributions. Given that almost a quarter (24%) of those who have made redundancies in the last 12 months blame the previous NI rises, just behind those citing wage inflation and increases in the National Minimum Wage (27%), that should worry the government.

Perhaps more importantly, business owners say raising rates would undermine the government’s efforts to revive the economy. Six in ten business owners say they would be deterred from starting a new business if higher capital gains tax were introduced at the Autumn 2026 Budget, and half agree strongly (18%) or somewhat (32%) that they would even consider leaving the UK if higher rates are introduced.

In the Prime Minister’s quest to drive growth in every postcode, he will need to ensure they are UK-based.

Approval code: BTS102657