Business leaders’ confidence in the UK economy has fallen sharply, as the full impact of government tax increases and rising cost pressures begins to take hold, according to the latest data from the Institute of Directors (IoD).
The Directors’ Economic Confidence Index — a key barometer of UK business sentiment — dropped to -53 in June 2025, down from -35 in May, marking a significant deterioration in optimism among company directors.
The survey found that investment intentions had suffered one of the steepest declines, with the net balance falling to -10 from 0 last month. Employers also cut back their hiring plans, with headcount expectations slipping from -1 to -10.
The IoD’s findings align with those of the British Chambers of Commerce (BCC), which recently reported that more than a third of its members were planning to reduce staffing levels in response to cost pressures. The data signals growing anxiety among business leaders over rising input costs, regulatory uncertainty, and tax burdens.
A major factor weighing on sentiment is the national insurance hike introduced in April by Chancellor Rachel Reeves, which saw employers’ contributions rise from 13.8% to 15%. This has added billions in labour costs for UK companies, particularly small and medium-sized businesses already navigating a volatile economic environment.
The increase in the national minimum wage has also intensified the pressure, particularly in labour-intensive sectors. Looking ahead, firms are bracing for further financial strain from the upcoming packaging tax and the government’s flagship employment rights overhaul — a wide-ranging reform package that ministers estimate will cost UK employers up to £5 billion in the coming years.
Anna Leach, chief economist at the IoD, said the recent slide in confidence reflected a tough balancing act for businesses. “Business leaders are finding economic conditions increasingly challenging, both as Autumn Budget tax measures take effect – particularly changes to national insurance, business and agricultural property relief – and from ever increasing global uncertainty,” she said.
While the government has recently launched a string of sector-focused strategies — including a long-term industrial strategy and new export trade plans — the IoD warned that rising costs were already undermining the UK’s attractiveness as a place to invest.
“The message coming through is that the tax increases unleashed on business have already undermined the industrial strategy’s ambition to make the UK the best country to invest anywhere in the world,” Leach added.
The IoD survey adds to a growing list of warnings from industry groups about the cumulative impact of policy changes on the UK’s business environment. As firms contend with tight margins, skills shortages, and geopolitical instability, many fear that confidence — and investment — may take time to recover.
