The reluctance by business owners to invest has become entrenched and risks being made even worse if tax incentives are withdrawn in the autumn statement, accountants have warned.
Martin Clapson, chairman of the Association of Practising Accountants, which represents firms advising more than 14,000 owner-managed businesses, said that far more business owners than normal were deferring significant investment decisions.
In its annual survey of 500 owner-managers, 65 per cent said they were unlikely or very unlikely to press the button on significant capital investments this year. The figure was 52 per cent in 2022.
“The purpose of doing an investment is that you make money on it, you get a return,” Clapson, who is also managing director of Price Bailey, the London and east of England accountancy practice, said. “It takes a year, two, three years to get that return. And what will the tax situation be under this government? We keep hearing that taxes need to go up.”
The UK has recorded the lowest rate of total investment in the G7 advanced economies for 24 of the past 30 years, according to the Institute for Public Policy Research. A study published this week by Demos, a cross-party think tank, highlighted how the ratio of private sector capital investment had fallen in relation to public spending in the past two decades.
In 1997, when the last Labour government came to power, businesses spent £5 on capital investment for every £1 the public sector invested, compared with £3.12 per £1 of public capital spending today.
Analysts expect the UK economy to pick up momentum as the year progresses, which could prompt companies to increase investment to meet higher demand. This month the Bank of England raised its GDP growth forecast for 2024 to 1.25 per cent from 0.5 per cent and cut interest rates by 0.25 percentage points.
Clapson said businesses had adopted a “wait and see” approach to business investment, with the political and economic turmoil of the past two years making them more cautious.
The chancellor should use her autumn statement in October to show that the government “really do value entrepreneurial SMEs”, he said, and that it is not inclined to treat them as a cash cow to help to improve the public finances