More than half of firms freezing investment as Budget fears take toll – report

More than half of British businesses are putting investment plans on hold until after next week’s Budget while uncertainty over taxes and policy is hitting small firms the hardest, according to a report.

The latest Barclays Business Prosperity index survey found 55% of all firms polled are pausing investment decisions until after the Chancellor’s long-awaited Budget, with speculation swirling over whether taxes will or will not be increased.

Small firms are instead boosting their savings and building up a “precautionary” buffer, with savings growing at a greater rate than for large corporates, up 6.1% year-on-year, Barclays said.

The lending giant said small and medium sized companies (SMEs) also remained “tentative to borrow to invest” despite signs of a wider recovery in lending activity, with loan balances up 2.2% year-on-year in the third quarter, driven largely by larger corporates.

The report also showed the impact of Budget worries, with more than four in 10 (45%) leaders of small businesses with fewer than 50 employees saying the level of certainty over future policy was having a negative impact on their companies.

Nearly a third of the 1,000 firms polled for the report called for greater policy stability from the Chancellor to unlock private sector investment.

In a sign of brighter times on the horizon, 83% of companies said they planned to ramp up investment if the Chancellor introduces supportive measures, such as reducing operating costs, improving access to skilled labour and providing policy stability.

Abdul Qureshi, managing director of Barclays Business Banking, said: “In what has been a challenging year for UK business, it is of vital importance to build up confidence to invest and grow, particularly within the SME sector.”

Budget fears are not the only worry facing companies, the report suggests, with more than a third (36%) saying economic uncertainty is now the biggest challenge cited by business leaders – up from 29% in last year’s survey.

Official figures last week that revealed economic growth slowed to 0.1% in the third quarter, down from 0.3% in the previous three months and worse than most economists predicted.

Former Bank of England chief economist Andy Haldane said on Monday that speculation over the upcoming Budget was partly to blame for the weaker-than-expected growth data.

Mr Haldane said the prolonged worries over the Budget and leaks over possible tax hikes had “caused businesses and consumers to hunker down”.

However, the Barclays report showed that the Budget concerns have not dented company optimism, with 86% of survey respondents feeling confident over their prosperity over the next 12 months.

Smaller firms were slightly less confident than larger counterparts, at 81% versus 91% respectively.

Matt Hammerstein, chief executive of Barclays UK Corporate Bank, said: “There are positive signs ahead of the Budget – businesses pledge to increase investment if fiscal policies align with their ambitions, particularly on productivity.

“This is a defining moment to provide policy stability that builds confidence among the business community.”