Skip to main content
Become a member


Press Releases

Interest rate cut not enough to bridge business confidence gap - IoD

04 Aug 2016
A digital screen displaying financial market data
  • Survey shows business leaders much more confident for their firms (net +26) than the wider economy (net -9)
  • Widely expected cut in interest rates would be positive for a quarter, but 6 in 10 say it would make no difference
  • 7 in 10 want an increase in the Annual Investment Allowance to boost the economy; two-thirds think Government should cut Corporation Tax

A business confidence gap is emerging, with firms worried about the economy but more optimistic about their own outlook, a survey of over 1,000 business leaders reveals today [Thursday]. The Institute of Directors said that this mismatch should convince the Government to take bold steps at the Autumn Statement to counter post-referendum concerns. Simon Walker, Director General of the Institute of Directors, said:

“Even though they think their organisations are still fundamentally sound, business leaders are worried about what the next few months hold for the UK economy. It shows the fragile nature of confidence that despite our members expecting profits to increase, overall business investment looks set to stagnate - if nothing changes.

“The UK badly needs an injection of confidence to prevent general concerns turning into lots of individual decisions to stop hiring and investing. We need the Government to produce a bumper, feel-good Autumn Statement. Increasing tax breaks for investment and cutting corporation tax would be a very good start, as would delaying the poorly designed Apprenticeship Levy.”   

In the survey, there were more businesses who thought revenue (+20), profitability (+9) and employment (+5) would be higher over the next 12 months than thought they would be lower. Directors were finely balanced on whether they would invest more or less in the next year (-1).

Interest rate cut not enough on its own

The Bank of England is widely expected to lower interest rates, but the survey suggests the move would not be enough to boost confidence considerably on its own. Around a quarter of IoD members say a cut would be positive, but 60% don’t think it will make a significant difference.

May right to drop deficit target

The IoD’s research also reveals a dramatic reversal since the General Election in how business leaders think the Government should tackle the budget deficit. In a survey of 1,200 directors last May, over 8 in 10 directors said they supported the Government’s manifesto pledge to eliminate the fiscal deficit by 2020. Now, following the Brexit vote, nearly the same proportion (78%) think that Theresa May was right to drop the target.

This gives the Prime Minister room to make confidence-boosting tax cuts.  Two-thirds (64%) of IoD members would support a cut in corporation tax to 15%, as had been suggested by the former Chancellor George Osborne, or lower. Half of directors want the investment allowance for machinery to be returned to half a million pounds a year, after it was cut to £200,000 in January.  A quarter want Philip Hammond to go even further, raising the allowance to £1million.

1,106 members of the IoD responded to the survey between July 14-28.

How optimistic are you about both the wider UK economy and also your primary organisation over the next 12 months?

Wider UK economy

Your primary organisation

Very optimistic

5%

8%

Optimistic

30%

38%

Neither optimistic nor pessimistic

22%

33%

Pessimistic

33%

17%

Very pessimistic

10%

4%

Don’t know

0%

1%

Net optimistic/pessimistic

-9

+26

Comparing the next 12 months with the last 12 months, what do you believe the outlook for your (primary) organisation to be in terms of:


Revenue

Profitability

Business investment

Employment

Much higher

7%

5%

4%

2%

Somewhat higher

40%

34%

21%

22%

No change

27%

31%

49%

57%

Somewhat lower

23%

25%

16%

15%

Much lower

3%

5%

8%

4%

Don't know

0%

1%

2%

1%

Net higher/lower

+20

+9

-1

+5

Theresa May has indicated that, as the new Prime Minister, she will not aim to eliminate the annual fiscal deficit before the end of this Parliament (set for 2020). What do you think about this decision?

In the circumstances, following the Brexit vote, this was the right decision

78%

This was the wrong decision, the Government should still aim to eliminate the annual fiscal deficit by 2020

15%

Other opinion (please specify)

6%

Don’t know

1%

The former Chancellor indicated that a further cut in the corporation tax rate might be announced in the Autumn Statement. Which of the following most closely fits your view?

There is no need to cut the corporation tax rate below the already planned cut to 17% in 2020

28%

The corporation tax rate should be cut further to 15%

30%

The UK should seek to match the lower corporation tax rate in countries such as Ireland by cutting the corporation tax rate to 12.5% or less

34%

The corporation tax rate is already too low and should be raised

3%

Other (please specify)

3%

No opinion / Don’t know

3%

The Annual Investment Allowance (AIA) cap, which enables business to offset qualifying capital expenditure on plant, machinery and fixtures, was cut by the Chancellor from £500,000 to £200,000 from January 2016. Do you think that:

The Chancellor should significantly increase the AIA cap to boost capital investment to, say, £1 million

24%

Restore the AIA cap to the £500,000 level before it was cut by the Chancellor

44%

Leave the AIA cap at the current level of £200,000

12%

Abolish the AIA as capital allowances at 18% per annum are a sufficient incentive for capital investment

6%

No opinion/Don’t know

14%

How would the Bank of England cutting interest rates affect your primary organisation, positively or negatively, if it were to occur in the next 12 months?

1 Very negative

2%

2 Somewhat negative

11%

3 Neither negative nor positive

60%

4 Somewhat positive

25%

5 Very positive

2%

Don't know

1%

Contact Press office