
In search of positive surprises How can the government restore business confidence?
UK business sentiment took a sharp turn for the worse during 2024. How can government rebuild confidence in 2025?
As the IoD’s Annual Policy Outlook underlines, the new year began with business confidence at historic lows. Rises in government bond yields over the last few days have only compounded the uncertainty.
The government has restated its determination to deliver growth – but can it shake off increasingly widespread pessimism about the economic outlook?
To do so, it must recognise that the Chancellor, Rachel Reeves, made a fundamental miscalculation with her October Budget.
She overestimated the strength of the economy’s nascent growth – and judged that while increased taxes and higher National Insurance contributions might be unpopular, employers would ultimately shrug off their impact.
Unfortunately, growth and confidence have both proved more fragile than she thought.
And confidence really matters. As Martin Wolf wrote in the FT, “depressed animal spirits threaten the investment on which future economic growth depends.”
Ministers should be focused on reviving those animal spirits by disrupting the established narrative about the UK’s prospects. That will require tangible pro-business policy decisions in the months ahead.
In short: business needs some positive surprises in 2025.
Where could positive surprises come from?
Business will be exploring four key areas:
Planning law
From housebuilding to electrification of the national grid, there’s a lot riding on planning law reform. Rapid progress would show the government is serious about creating the conditions for business to invest.
Industrial strategy
The Industrial Strategy, due this spring, will need significant funding to make a meaningful impact. With the public finances under strain, will reality match the government’s rhetoric on growth?
Employment rights
As the IoD has long argued, Labour’s reforms risk deterring employers from hiring. We’ve welcomed the commitment to consult on a new statutory probation period; legislating for a lengthy period would help alleviate concerns. So would phasing in reforms more gradually than currently planned.
Resetting trade relationships
Steering between the global economy’s dominant blocks – the US, the EU and China – is fraught with risk, given their competing interests and conflicting priorities. Yet there are substantial opportunities here too, if the UK can position itself astutely. Much rests on the forthcoming trade strategy.
There are no simple solutions for restoring growth – but the government will struggle to find any solutions if it fails to rapidly take meaningful steps to restore business confidence.
For more on how the IoD influenced policy across the UK in 2024 and priorities for 2025, read our Annual Policy Outlook.
