Services sector in one year of pessimism, CBI suggests
The UK services sector’s pessimism in business prospects has now lasted a full year, a new survey has found, providing further evidence that the trust between businesses and the Labour government has broken down.
Labour ministers have rolled out a number of strategy papers over the last months to offer firms across the country a vision for higher growth after last year’s Budget hiked employment taxes by some £20bn.
But a new survey conducted by the Confederation of British Industry (CBI) between July and August has suggested that policy announcements have had little impact on businesses’ attitudes towards growth and expansion.
The UK’s largest industry body said optimism about business prospects had worsened for the fourth consecutive quarter while cutbacks in investment on property and machinery would continue to be made.
The survey of nearly 400 services companies also suggested investment in training would fall lower while more firms also said they would shed staff, though at a slower pace than in previous months.
When asked about performances for the last three months, most firms said profitability had been squeezed, which is nearing a four-year run during which most companies have made this claim.
Services sector in ‘grim’ state
Alpesh Paleja, deputy chief economist at the CBI said new data painted a “grim picture” of the sector, which makes up around 80 per cent of gross value added (GAV) in the wider UK economy.
“Rising employment costs continue to drive cost pressures higher, while subdued demand conditions are holding pricing power in check,” Paleja said.
“The impact is being felt in lower hiring, investment and profits, with companies increasingly shifting focus to short-term fire-fighting.
Paleja followed other business groups in urging the government not to tax businesses at the autumn Budget despite suggestions Chancellor Rachel Reeves may have to plug a £50bn shortfall in the public purse.
He also said reforms in the Employment Rights Bill should be re-considered to prevent further costs being added onto companies.
Ministers have refused to comment on which taxes could be raised this autumn, though business secretary Jonathan Reynolds has labelled wealth taxes as “daft” while reports have suggested pension pots and property could be targeted to raise more revenue.
Property owners fear business rates could be raised, with online retailers fearing they could be struck with additional taxes.
Adding extra levies on firms to fund apprenticeship has also been recommended by a Labour Party-affiliated think tank as part of the government’s push to reform the growth and skills levy.