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UK businesses warn of ‘autumn storm’ of shortages, costs and taxes

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UK business leaders have warned ministers about an “autumn storm” of rising taxes, escalating costs, labour shortages and supply disruption as government Covid-19 support schemes come to an end.

Business groups are reporting a sharp fall in confidence among members after the summer, when many had been buoyed by the Covid vaccine rollout and end of restrictions.

However, third-quarter data that will be published next week by the British Chambers of Commerce is expected to show that rising costs for wages and materials, along with skills shortages are causing concern.

The Institute of Directors will report on Friday that data collected this month show a sharp drop in business confidence following the announcement of a proposed increase in national insurance that will hit businesses next year.

Its economic confidence index has fallen to levels last seen at the height of the third lockdown in February 2021 after recording record highs in the summer. Kitty Ussher, chief economist at the IoD, said the “business environment has deteriorated dramatically in recent weeks”.

“We were seeing good increases in confidence through the summer,” said Shevaun Haviland, the BCC’s director-general. “But I have been on a number of CEO calls in the last week that we have tried to end on an upbeat note but no one could find one.”

The IoD has written to the chancellor asking for an urgent meeting given its concerns about the impact of the £11bn tax increase. The letter, seen by the Financial Times, warns the chancellor that the rise will have an impact on jobs and growth. It raises concerns about the scrutiny of the move and argues that the decision falls short of good government practice.

Craig Beaumont, chief of external affairs at the Federation of Small Businesses, described a broader “autumn storm” of headwinds for business of tax increases, rising costs, labour shortages and supply chain disruption.

The petrol crisis has added to short-term problems, according to business leaders. Issues were raised in a meeting between business groups and business secretary Kwasi Kwarteng on Monday night, and then in a broader call with unions and Labour leader Sir Keir Starmer on Tuesday.

Tony Danker, CBI director-general, said “it’s clear there’s a total mindset shift from growing to coping” following a 10-day consultation with 800 member companies. The move from a “growth and investment mindset” to crisis management was across all sectors and sizes of business, the CBI said.

Ben Fletcher, chief operating officer at Make UK, which represents manufacturers, said the conditions were tough for many companies given rising costs and shortages of drivers and supplies.

He added that problems for businesses were going to become even more challenging in the run-up to Christmas as retailers battled to fill shelves, including the hunt for more heavy goods vehicle drivers.

The shortage of drivers is unlikely to be solved by the 5,000 visas that will be offered to overseas workers to solve temporary supply disruptions, according to haulage groups, with industry estimating that more than 10 times that number will be needed.

Fletcher said tax rises this and next year would add to the burden. “It’s asking us to climb a mountain with a 50-pound weight,” he said.

Hospitality businesses face the return of a 12.5 per cent value added tax rate from next month as Covid support measures are withdrawn, rising to 20 per cent in April when new national insurance increases will start.

In a separate submission for the October Budget, the IoD laid out measures to support business investment, improve business access to skills and reform business rates.

Pointing at the decision to end the New Enterprise Allowance, FSB’s Beaumont said the Conservatives risked alienating businesses and becoming an “anti-small business” party. Talking at the Labour party conference in Brighton, he said this created space for other parties that want small business votes at the next election.

In an FSB submission to the autumn Budget seen by the FT, the group warned that “the recovery is far from secured — and a strong recovery even less so”. It wants the chancellor to increase the employment allowance, which enables employers to reduce their national insurance liability, from £4,000 to £5,000, and remove more small businesses from the business rates system.

In response, the business department said: “We are committed to building a high-skilled, high-wage economy where employers make long-term investments in the UK’s workforce instead of relying on labour from abroad. We will continue to help people retrain, build new skills and get back into work to help fill vacancies.”