What can nervous businesses expect from the Budget?

Business leaders, who were bearing the brunt of brutal tax rises this time last year, face a tense final few days before the Chancellor’s second budget.

Firms are still reeling from these: the £25bn National Insurance increase and the inflation-busting increase in the minimum wage.

As the budget approaches, trust in boardrooms becomes increasingly fragile. Nearly every measure of sentiment among chief executives and finance bosses over the past six months has shown alarm bells ringing.

So what can nervous business owners and leaders expect from Rachel Reeves?

We are sure that taxes will increase and this takes money out of the economy. Research firm Capital Economics estimates the Budget will reduce GDP by 0.2% in 2026; This is a significant blow for an economy that grew by just 0.1% in the third quarter of this year.

However, as the chancellor pulls money out of the economy, the Bank of England is likely to push it back by cutting interest rates, encouraging people and businesses to borrow and spend.

And as a senior government adviser told the BBC, this means most of the “big things” affecting business confidence, including inflation, are expected to fall next year. I would expect the Chancellor to highlight these positive aspects.

When it comes to business, the government will want to be judged in part by what it hasn’t done in this Budget: no more nasty surprises, no more across-the-board tax rises.

Rain Newton-Smith, chief executive of the CBI business group, said “stability is the only path to growth” and urged the government not to hit businesses with more taxes.

Speaking at the CBI’s annual conference, Trump said the government must “make hard choices for growth before it gets hard, have the courage to make two hard decisions instead of 20 easy ones.”

“It means one or two broad tax increases rather than death by thousands.”

So what could be in the mix?

Business rates are a bugbear. Many companies saw their bills almost double after the 75% discount applied during the pandemic period in retail, hospitality and entertainment businesses was reduced to 40% last year.

The chancellor has previously promised reform. It could make existing reductions permanent and eliminate the cliff edges that cause small businesses’ interest bills to skyrocket as they grow. This could be partially met by increasing rates on the largest retail properties.

Business Secretary Peter Kyle is speaking at the Confederation of British Industry (CBI) conference on Monday and has several business-friendly policies to unveil.

This includes a consultation on how to reduce energy bills for 7,000 businesses and a directive for the British Business Bank to focus its lending on eight “high potential” sectors identified in the industrial strategy.

The Chancellor is also likely to point to the upcoming Planning and Infrastructure Bill, a piece of legislation he described as “probably the biggest thing we will do in this parliament”, as a way of removing barriers to growth.

Bank profits are a tempting target, and there are mixed messages about whether to raise taxes there. But ministers are concerned this does not fit the pro-growth, pro-investment narrative.

The Treasury is likely to reduce payments to the Bank of England to cover losses from the sale of government bonds bought to support the economy during the pandemic and financial crisis.

This would reduce payments to commercial banks and would be viewed by them as a bank tax in all but name.

The oil and gas industry has been lobbying hard for a pause on “windfall” taxes on its profits, arguing that there will be no windfall profits to tax due to low oil prices. They say that investments in the North Sea are rapidly decreasing, which has a side effect with the closure of refineries and chemical plants. Companies say the relief could protect jobs.

The 38% additional tax, added to the sector-specific 40% tax rate, is planned to end in 2030. There is a possibility that it will be phased out earlier.

There are still concerns among bosses about the government’s flagship Employment Rights Bill, which promises sick pay and protection for new workers against unfair dismissal from day one.

Rain Newton-Smith told the CBI conference the government needed to “change course” on the bill and businesses were not being listened to.

There is no sign of the government backing down, but Kyle recently told a committee of MPs that there had been 26 consultations on exactly how these measures would be implemented.

The Chancellor is also expected to talk about consumers having the “confidence to spend”.

Some in the business community will likely interpret this as heralding a higher-than-inflation increase in the national living wage, which will tend to push up other salaries in a firm’s wage structure as well.

Another policy that will affect both employers and employees is the introduction of caps on salary sacrifice programs that allow employees to put some of their pre-tax earnings into retirement funds.

Such schemes are widely used in large companies and there are concerns that cutting them would mean less generous workplace pensions in coming years.

What the government wants the business community to hear is that it is on their side, that it knows too much was asked of them last time, and this time they are spared, even given marginal help whenever possible.

After months of anxious anticipation, the business world can collectively breathe a sigh of relief.

According to a recent Barclays survey, 55% of business leaders say they are delaying investment decisions until they see the budget. But 43 percent say they expect to increase investment from now on, a possible sign of pent-up optimism.

But trust is still very fragile. The chancellor will need to tread carefully.