Businesses’ profit expectations at three-year low ahead of Autumn Budget

Grant Thornton UK LLP has found that mid-market business confidence is faltering ahead of the Autumn Budget on 30 October, as profit growth expectations sunk to a three-year low.

The firm’s latest Business Outlook Tracker*, which surveyed 603 UK mid-sized businesses in October, finds that just over one third (39%) of respondents expect their businesses’ profits to increase over the next six months.

This is the lowest level seen since December 2021 and a significant -30 percentage point (pp) drop compared with February this year (69%).

With interest rates remaining high at 5%, despite inflation falling, businesses’ confidence in their funding position also continued a steady decline in October. Confidence dropped -3pp compared with July, and -9pp compared with February.

Whilst overall confidence in the UK economy remains stable, there has been a slight increase in businesses’ pessimism about the outlook of the UK economy across this year.

The report also highlighted that as we approach the new government’s first Budget, 13% of businesses are pessimistic about its outlook, a +4pp increase compared with February 2024.

Additionally, while many businesses are already feeling unsure of their financial position, the research also revealed that almost all of those surveyed expect to see some taxes/costs to businesses increase over the next 12 months. The taxes that businesses feel would pose the biggest challenge to them, if increased, are found to be, Environmental taxes (30%), Capital Gains Tax (30%), Corporation Tax (29%) and Business Rates (29%)

All the businesses surveyed are now looking to the government for support. The three areas that businesses would most like to see the government focus on in the Budget are, tax incentives for businesses to invest in capital (30%), skills (28%) and R&D (27%)

Abby Agopian, head of Tax Policy at Grant Thornton UK LLP, said: “Businesses are braced for tax rises is not unexpected as the government has not shied away from the narrative that there are tough fiscal choices to be made in order to fill what’s been described as a substantial black hole to balance the books.

“The expectation is that there will be little fiscal room for enhancing the current suite of business tax incentives. The main business tax offer at this Budget is anticipated to be a tax roadmap for businesses which it is hoped will confirm previous statements from the Government that the current capital allowance incentives, including full expensing, and R&D tax incentive rates will be maintained. Sticking to the theme of maintaining stability, the centrepiece of the roadmap is expected to be the government’s pledge to cap the headline rate of Corporation Tax at 25%.”

Agopian added: “The list of taxes that would pose the biggest challenges to business if increased extends well beyond Corporation Tax alone, with Environmental taxes and Capital Gains Tax topping the list, and there remains little clarity on what this wider future business tax landscape could look like post 30 October. There is a risk that those looking for wider clarity on this at the Budget may be disappointed, as it’s understood that the focus of the business tax roadmap will be Corporation Tax, with Reeves referring to it at the International Investment Summit this week as a ‘corporate tax roadmap’.”