Business confidence slumps as tax fears choke growth and kill jobs

Businesses are less confident, again, according to The Business Confidence Monitor for the 4^th quarter of last year, published this morning by the ICAEW. It shows:

• The Business Confidence Index fell to -11.1 during a period of speculation around the November Budget
• Sales growth remained weak and inflationary pressures persisted.
• The tax burden was reported by nearly two thirds of all companies as a growing challenge, with record highs in many sectors
• Regulatory worries were reported by over half of businesses.

On top of that employment growth dipped further, and some sectors reported further job declines with capital investment and R&D outlook also remaining weak. Confidence fell in most sectors, with sharp declines reported in Property, Construction, and Retail & Wholesale,

ICAEW is a professional body : the Institute of Chartered Accountants for England and Wales. Research is done with about 1,000 businesses of all sizes across the various business sectors every quarter. Of course there are several other confidence monitors published by other professional bodies and business organisations such as the Institute of Directors. They all come up with slightly different results, have different cohorts of business members they talk to, ask their questions slightly differently and use different time periods but they are fairly well united in the view that business confidence is low. Sadly the results of most confidence surveys are a bit behind timewise. The one published today relates to Q4 of 2025 so things could have moved on by now in the middle of January 2026. The IoD talks to its businesses every month and so is slightly more reflective of ‘real time’.

If you’re now wondering why this matters to you, stick with me.

Business confidence isn’t just a “nice to have” for small and micro businesses. It’s one of the most powerful predictors of whether they survive, grow, or contract. When confidence drops, the effects are immediate and often severe, because these firms operate with far thinner buffers than larger companies.

They have smaller financial cushions

• Small firms typically hold limited cash reserves.
• When confidence falls, they delay investment, hiring, and and buying stock not out of strategy, but necessity.
• Recent UK data shows that more than half of small firms reported falling revenues, with many bracing for contraction or closure.

They are more exposed to economic shocks

• Rising costs (utilities, labour, taxes) hit small firms disproportionately because they can’t absorb shocks the way large firms can.
• In early 2025, 85% of small businesses reported rising costs, with nearly a quarter seeing increases above 10%, but with most scared to put up prices in case they lose customers.
• When confidence is low, these pressures feel even heavier, and decisions are more about surviving than thriving. Fewer are willing to take risks even if they can see opportunities.

Confidence drives hiring and staffing decisions

• Small businesses hire cautiously.
• When confidence drops, they freeze recruitment or cut staff and reduce training and upskilling.
• Historically around 6–8% of small firms planned to increase staff during times of low confidence, while up to 20% expected to cut jobs.

It shapes investment and growth behaviour

• Confidence determines whether a business invests in equipment, training, marketing, new products, or expansion.
• When confidence collapses, investment collapses with it. This is why low confidence readings are seen as a warning sign for the wider economy and should keep Government informed as to how business is feeling.

Coinfidence affects access to finance

• Lenders become more cautious when confidence is low.
• Only half of small firms who applied for credit get approved, and nearly half of those approvals are used just to manage cash flow rather than growth.
• This traps businesses in a cycle where low confidence reduces investment, which reduces productivity and growth, which reduces confidence further.

Confidence influences closure risk

• When confidence falls sharply, the number of businesses expecting to downsize, sell, or close rises dramatically.
• In one recent quarter, almost a third of small firms reported that they expected to contract and 6% thought they might have to close, about 330,000 potential closures across the UK.

This matters for businesses, the tax take and public spending, households, families and communities, as well as policymakers and support organisations

Low confidence among small and micro businesses isn’t just a mood indicator. it’s a warning about the state of the economy and the future of:

• Reduced economic activity
• Lower employment
• Fewer new business starts
• Higher closure rates
• Slower local and national growth

We ignore the confidence surveys, barometers and indices at our peril and if tax concerns are driving confidence down then perhaps it’s time to look at how to address those concerns?