An increasing number of businesses see tax and red tape as major challenges, research finds.

Increasing frustration at the lack of progress to make it easier to do business is revealed in the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).

The monitor also shows a decline in confidence as both UK and global economic turmoil impact on businesses’ plans for the future.

Regulation challenge

The lack of government urgency in tackling red tape is reflected in this quarter’s findings. Four in ten report regulatory requirements to be a greater challenge than 12 months ago, up from 33% in Q3 2010. The tax burden is also having a bigger impact on 25% of companies’ performance, up from 18% a year ago.

Michael Izza, Chief Executive of ICAEW, said: "Businesses are doing their best to grow the economy in a tough climate, but they feel little progress has been made on tackling regulation and improving tax competitiveness.

"Six months ago, the government described its Plan for Growth as 'an urgent call for action'. The plan is sound, but the urgency is lacking. We need to get on with implementing the plan – reforming the tax system to make it simpler and more competitive, making Britain business-friendly and boosting skills."

Key business financial performance indicators

This quarter, the positive trend for growth in key business financial performance indicators which began in the middle of 2010 has weakened. Average turnover growth in the year to Q3 2011 has faltered from 3.9% to 3.6%, while average gross profit growth is reported at 3.1%, from 3.8% last quarter.

Firms have also revised down their expectations for turnover and growth over the next 12 months.

Cost pressures

Private sector employment growth may slow due to rising input prices, which are 3.0% higher this quarter than a year ago. Businesses also report selling prices increasing by only 1.2% over the last twelve months putting increasing pressure on profit margins.

Employment growth has slowed with staff numbers just 0.3% higher than last year. Salaries reflect this stagnation with businesses reporting staff basic pay only 1.6% higher than 12 months ago, despite rising inflation.

Confidence

The manufacturing and engineering sector has suffered falling confidence since the middle of last year – a worrying sign if the rebalancing of the economy away from a reliance on services is to happen. Confidence in this sector now stands at +5.0.

The retail and wholesale sector continues to have the lowest confidence of any sector. The Index stands at -0.7 and is still the only sector with a negative confidence index.

Scott Barnes, CEO of Grant Thornton, said: "There is little surprise that confidence among the businesses surveyed has fallen to its lowest level in almost two years back when the recession raged. Although businesses are predicting growth in turnover, exports and profits, the fragility of our largest overseas markets is worrying.

"The UK economy will however grow this year, albeit weakly, and I believe we will avoid the double-dip recession. That may be little consolation today but we have to look to longer-term recovery rather than quick fixes."

Key findings for Q3 2011

·  The BCM Confidence Index (CI) has fallen from +13.7 to +8.1 in Q3 2011 and is at its lowest level since Q3 2009 when the UK was still in recession

·  The positive trend for growth has faltered, with firms seeing turnover and profit growth weakening as well as revising down future expectations

·  An increasing number of businesses see tax and red tape as major challenges, with 40% believing regulation is a greater burden than 12 months ago.