The IoD Balanced Scorecard for Government Explained July 2026
As the UK once more adjusts to a new administration, the IoD has published our refreshed KPIs for the UK.
These are designed to track progress on the economic measures that matter over the course of this parliament.
Happily, some progress has been made.
Exports and investment have risen, the cost of the administrative burden of regulation has declined a little and skill shortage reports have lessened.
But there’s a lot of red left. Business confidence has been low and volatile for much of the last two years, measures of tax competitiveness show no progress and business electricity costs remain uncompetitive. In the labour market, skill shortage reports have declined in part because businesses aren’t hiring, and the UK’s employment rate (1) hasn’t moved towards the previous government’s 80% employment “ambition” and (2) remains at risk of dropping as businesses continue to show little hiring appetite.
The KPIs
IoD Directors’ Economic Confidence Index
The IoD publishes a monthly measure of confidence called the Directors’ Economic Confidence Index (DECI), based on reported optimism in the UK economy over the next 12 months.
Business confidence has been low and volatile since Autumn 2024, when speculation ramped up ahead of a Budget which saw the tax burden on business raised sharply. Confidence has been suppressed by a variety of factors according to the anecdotal evidence we receive and through analysing our other time series measures, such as revenue and investment expectations. It is certainly the case that domestic policy uncertainty has played a role at turning points in the headline confidence series – particularly when speculation has increased regarding tax policy changes. But confidence has also been impacted by geopolitical developments, such as US tariffs and the outbreak of war in Iran.
It is clear that business confidence would be improved through more predictable, less changeable, and more business-friendly policy development in the UK. At a time of heightened geopolitical uncertainty, the value of domestic policy stability is arguably greater rather than less.
Tax competitiveness
A stable, simple, digital, predictable tax system is essential for minimising the (unintended) frictions that government revenue-raising drives. The tax system can also be used as a tool to achieve societal outcomes – e.g. a progressive tax system (i.e. one in which the wealthier pay more) is used as a tool support the less well off in society. But well-meaning intentions can have the effect of worsening outcomes – e.g. debates about taxing the wealthy risk driving entrepreneurs to other countries or disincentivising effort and success.
Businesses have a wide range of concerns with the current tax system, including that it changes too frequently, is difficult to understand what is required and easy to get wrong, as well as issues with the performance of HMRC customer service (e.g. lack of consistency and unpredictable response times).
As the UK tax burden has increased rapidly in recent years, and the economic activity needed to generate revenues has been weak by historical standards, it makes sense to ensure that the system itself is efficient and effective in achieving its aims.
The Tax Foundation’s latest international competitiveness rankings sit the UK in 32nd place. By contrast, New Zealand is 3rd, Sweden 11th, Canada 13th Germany is 20th, and Norward 21st (Italy and France are 37th and 38th respectively).
The future direction of the tax system requires much greater, but also much more careful, debate. Random proposals to increase CGT, introduce wealth taxes, or increase property taxes generate additional uncertainty and without broader reforms, risk eroding the tax base. Meanwhile there are clear opportunities to address the efficiency of public spending, particularly in areas like pensions, welfare and health, which are currently on unsustainable trajectories and are contributing to pressure to raise the tax burden further. The challenge is increasingly not simply the level of tax, but the competitiveness, predictability and coherence of the system as a whole.
Business electricity costs
The UK has the highest industrial energy prices in Europe and the G7, putting British businesses – particularly energy-intensive ones – at a significant competitive disadvantage on the international stage. In May 2026, a third (35%) of IoD members cited energy costs as having a negative impact on their organisation.
The government’s recognition of the issue, reflected in the announcement of the British Industrial Competitiveness Scheme, is a welcome first step. However, the scheme will only help around 10,000 energy-intensive businesses and does not address the root causes of the UK’s sky-high industrial energy costs.
Similarly, the government’s plan to break the influence of gas on electricity prices by offering voluntary long term fixed contracts to existing low-carbon generators not on fixed‑price contracts is a welcome recognition of the costs borne by UK consumers due to the continued influence of volatile gas prices on electricity prices. However, without rapid and significant investment in energy sources which can displace gas, or the adoption of an alternative to marginal cost pricing, UK businesses are unlikely to see any reduction in their high energy costs any time soon.
Regulation
The proportionality and burden of regulation in the UK has been an area of focus for government for many years. The Regulatory Policy Committee was set up back in October 2009 to provide independent scrutiny of regulatory proposals and to offer challenge when they are not supported by robust evidence and analysis. Various targets have been in play since then – e.g. One in One Out, One in Two Out, the Business Impact Target, and the Starmer government’s target for reducing the administrative burden.
The Starmer government has attempted to push regulation in a more pro-growth direction. This has included setting a target to reduce administrative burdens on business and directing regulators to place greater emphasis on growth and competitiveness alongside their existing objectives. This reflects a view that the UK regulatory system has become increasingly focused on risk management while placing insufficient weight on economic costs and investment impacts.
The results of successive regulatory targets are largely judged to have been mixed. The biggest criticism has been the exclusion of many significant areas of regulation from the overall scope of targets – and that is an arguable challenge relating to the 25% burden reduction target, which focuses only on the process of meeting regulatory requirements and not on the reasonableness of the requirements themselves. Nonetheless, the targets are judged to have improved regulatory discipline across central government through requirements to conduct impact assessments and via RPC scrutiny.
The ongoing challenge remains delivering reductions in regulatory burdens that are both measurable and meaningful. While the Government has clearly recognised the growth implications of regulation, evidence of a material reduction in the overall burden facing businesses remains limited. The important measure of success will be whether businesses consider that regulation is diminishing as a blocker to their success.
Quantity of exports
The value of UK exports in the 12 months to the end of May 2026 was £946.6 billion, representing a 3.1% increase from the previous 12 months. This consisted of a 2.3% increase in exports to the EU, and 2.9% increase in exports to non-EU countries. Meanwhile, the proportion of businesses across the country that exported in 2024 (the latest release of this figure) was 12.1%, up from 0.6% up from 2023.
2025 was a busy year on the trade front, with deals secured with India, the US and the EU.
The India deal was announced first, cutting Indian tariffs on key products such as whisky, cosmetics and medical devices, locking in reductions on 90% of tariff lines for UK exports.
Then there was an early arrangement with the US to soften the impact of US tariffs on the UK. The UK secured a smaller increase in tariffs on car exports up to 100,000 a year, and on steel and aluminium exports (although eligibility for those lower tariffs is complicated), while the UK allowed additional market access for US beef and ethanol.
However, certain areas of negotiation have stalled with regards to digital trade and economic security. For example, there are outstanding commitment to agree a quota for steel and aluminium tariffs, and the tech prosperity deal, which was announced last September, was abandoned just a few months later over concerns around the Digital Services Tax and online safety regulation.
At the UK-EU summit, a new strategic partnership was agreed, establishing a ‘Common Understanding’, for cooperation on defence and security, an objective to dynamically align agrifood regulation, linking our electricity trading and emissions trading schemes, and exploring youth experience schemes. The UK rejoined Erasmus+ in December, a programme which provides grants for individuals and organisations to study, volunteer, and collaborate internationally. There was also the commitment to facilitate regular dialogues on business mobility and professional qualifications.
The government’s trade strategy was published in June to compliment the Industrial Strategy, prioritising pragmatic deals, a focus on strategic sectors and services, and providing additional funding for export support. That pragmatism point was reflected in a tone which presented trading partners equally, rather than expressing a preference. This practice of securing sector specific or targeted bilateral economic agreements continued through 2025 into 2026, with the UK landing bilateral treaties with France and Germany to strengthen business and trade cooperation in 2025, and signing a services focused deal with Switzerland this month. This year also saw the UK being the first G7 nation to sign a deal with the Gulf Cooperation Council (GCC). Inevitably with trade, these are welcome rather than groundbreaking. The US deal softened rather than removed the tariff blow, and in fact for some sectors, wasn’t as good as the deal the EU ultimately secured. The India and EU deals each deliver a GDP benefit to the UK of around 0.1% and 0.2% respectively.
Investment
It is widely accepted that the UK has an investment problem. Both successive governments and businesses have invested considerably less than comparator countries over multiple years, even when you control for the sectoral structure of the economy. Consequently the capital gap – the difference in the stock of capital which the UK enjoys vs other countries – has fallen substantially behind. This is judged to be a factor behind the UK’s poor productivity performance – influenced as it is by the quantity of capital per worker, as well as the efficiency with which that capital is utilised.
The Starmer government’s approach to tackling this largely focused on three areas: increasing the availability of long-term capital, improving confidence and certainty for investors, and reducing barriers to investment.
Various reforms have been made to the financial sector in recent years to help address some of the factors likely to be constraining the availability of and appetite for long-term capital. These include directing regulators to have greater consideration for growth, the merger of local authority pension funds to deliver efficiency savings and lower costs, reforms to capital markets, and providing additional capital to back the British Business Bank alongside the creation and financing of the National Wealth Fund to improve funding availability for start-ups, scale-ups and infrastructure projects. These have largely gone down favourably with the financial sector, with the exception of the government granting itself time-limited powers to mandate pension funds to invest minimum levels in UK assets should they fail to meet their voluntary commitments.
Alongside these financing reforms, the Government has placed considerable emphasis on reducing uncertainty and providing clearer long-term signals to investors. Starting in the Autumn 2024 Budget, the budget for public sector capital investment was increased by around £120 billion over the five years of the parliament. This helped stabilise capital investment as a percentage of GDP rather than allowing it to fall as previously outlined. This took place alongside the creation of NISTA: the National Infrastructure and Service Transformation Authority. This body, (comprising the former National Infrastructure Commission (NIC) and the Infrastructure and Projects Authority (IPA)) is intended to improve long-term infrastructure strategy and the delivery of major projects – HS2 being a particularly powerful example of multiple failures in delivery. The publication of the 10-year Infrastructure Strategy and Industrial Strategy in 2025 was intended to complement this by providing greater certainty around future government priorities, enabling businesses to plan investment, workforce requirements and supply chains with greater confidence.
Planning reform has also become a more prominent feature of the Government’s investment agenda. Planning reforms and the backing of showcase projects – such as the Oxford/Cambridge arc and the Heathrow third runway – were likewise intended to build confidence and support planning in the business community. The same is true of the decision to set an ambitious target for housebuilding in England and Wales.
Public sector investment is a powerful tool for growing the economy as it can crowd-in private sector investment by reducing risk, and also improve productivity through better transport infrastructure. The caveat is that it greatly depends what the capital investment is in: transport, energy, and technology investments are likely to improve productivity by the most.
Unfortunately, the Autumn 2024 Budget also saw employer NI raised sharply, and this was judged by the OBR to be negative for business investment through its impact on profits. It is also worth noting that the 2024 Budget increased borrowing by around £30 billion a year, contributing to higher interest rates, while the Bank of England and OBR judged that the overall fiscal package would increase inflation by around half a percentage point at its peak. This would also have deterred borrowing for investment purposes.
Changes in the non-dom regime alongside debate over the future taxation of capital and wealth, have raised concerns in some parts of the business community regarding the UK’s attractiveness to internationally mobile investors, entrepreneurs and business founders.
And finally, the narrow headroom against the fiscal rules has enabled regular speculation over which taxes might be raised to plug the gap, which will have further suppressed investment by generating uncertainty in businesses over future cost levels. This has had a particularly significant impact on the housing sector, which has seen speculation over changes and increases in housing tax significantly impact demand and, therefore, project viability.
On the whole, the impact from government reforms, particularly higher capital spending and planning reforms, may outweigh some of the other negatives. But with the strong caveat that the environment for business investment specifically has largely worsened over the past two years.
UK R&D spend
The Government has thus far made science, technology and innovation a central pillar of its growth strategy. Alongside long-term commitments to public R&D funding, it has introduced a broad package of measures spanning AI infrastructure, sovereign compute capability, digital infrastructure, access to finance and technology adoption. Importantly, the focus has extended beyond research alone towards strengthening the wider innovation ecosystem, with greater emphasis on commercialisation, diffusion and scaling innovative businesses.
However, these foundations have yet to translate into demonstrably stronger economic outcomes. The UK’s challenge has never been solely the level of public investment or the quality of its research base. It has excelled at producing world-class science and attracting investment, while struggling to convert these strengths into sustained productivity growth, internationally competitive tech firms and widespread business adoption of innovation. While the Government has recognised many of these barriers through initiatives targeting skills, AI adoption, regional innovation, and commercialisation, these programmes remain in the early stages of implementation and evidence of economic impact is still limited.
Overall, the direction of travel is credible, but delivery remains the key test. The success of the Government’s approach should ultimately be judged not solely by the scale of public R&D commitments or the number of strategies and initiatives announced, but by whether they stimulate greater private investment, accelerate the diffusion of innovation, and deliver sustained improvements in productivity and economic growth. At present, there is clear evidence that the Government is fostering an environment for innovation, but considerably less evidence that those conditions are yet translating into measurable economic performance.
Skill Shortages
The UK’s productivity and growth have long been undermined by skills shortages. Even at a time of significant softening in employer demand for labour, 26% of IoD members are citing skills/labour shortages as having a negative impact on their organisation.
The fundamental issues are a misalignment between the skills which individuals leave the education system with and the skills which UK employers need, and the inability of the adult skills system to upskill and reskill workers at a rate commensurate with the pace of economic change.
Successive governments have spoken powerfully about the need for parity of esteem between vocational and academic pathways, at the same time as overseeing a policy – the Apprenticeship Levy – which has failed on the most basic level: eight years after its introduction, apprenticeship starts in England were 28% lower.
Employment rate
The UK’s employment rate has recovered more slowly than similar economics since the end of the COVID-19 pandemic, with the current rate of 75.1% 1.4pps lower than immediately before the pandemic. Particularly worrying are the increase in individuals withdrawing from the labour market due to ill health and the growth in the youth NEET rate, which in May 2026 exceeded one million for the first time since 2013.
The Labour government has set an ambitious goal of increasing the UK’s employment rate to 80%, but thus far its policy on employment has served only to dampen employer demand for labour. Introducing a wave of employment law reforms, continuing to increase the National Living Wage beyond inflation, and hiking employer’s National Insurance contributions have significantly damaged employer appetite for hiring.
While the government has recognised that action is needed to tackle the rising youth NEET rate in particular, thus far its interventions – in the form of small, one-off hiring incentives – have not shifted the dial. If the government is to achieve its aim of a higher employment rate, it must tackle the crisis in the cost of employment.
Productivity and living standards
Achieving higher living standards was the core ambition for the Starmer government. This is the ultimate aim of its activity: to raise the amount of GDP per person in the UK, and thus the level of real disposable income. Much of the debate around the UK’s productivity experience in recent years focuses on the deterioration in its growth and how the UK compares with counterparts, particularly in the G7. It is worth noting that developed countries as a whole have seen their productivity performance deteriorate since the financial crisis, it’s just that it’s been greater in the UK. The UK also seems to have been hit relatively worse by subsequent shocks, such as the pandemic, as well as having its own specific shocks and drags on growth, such as Brexit and the subsequent increase in political and policy uncertainty. A key marker of success for the UK will be lifting its performance relative to G7 standards.
Viewed through this lens, much of the Government’s economic agenda can be understood as an attempt to address the UK’s long-standing productivity weaknesses: low investment, weak infrastructure delivery, poor planning outcomes, expensive energy, skills shortages and weak diffusion of innovation. The challenge is that these reforms tend to operate over long-time horizons, meaning that success may only become visible in productivity statistics gradually.
About the author
Anna Leach is a well-known UK economist, who appears regularly in the broadcast and business media. She has over 20 years of experience in a variety of macroeconomic and policy roles in business organisations and the civil service.
Prior to joining the IoD in 2024, Anna was Deputy Chief Economist at the Confederation of British Industry (CBI), where she was responsible for macroeconomic analysis, business surveys (economic, policy and commercial) and economic consulting.
Earlier in her career, Anna was a member of the Government Economic Service, where she undertook policy roles at the Department for Work and Pensions, looking at labour market issues, and in the HM Treasury economic analysis team. Anna has an MSc and a BSc from the University of Warwick, both in Economics.
Join a thriving community of skilled directors and leaders
Ask us about membership
