Business Review – December 2025

Research from the Institute of Directors (IoD) suggests business leader optimism remained at a historically low level both before and immediately after the Autumn Budget. 

Fieldwork for last month’s IoD Directors’ Economic Confidence Index took place in the run-up to the Chancellor’s Statement on 26 November and directly after Ms Reeves delivered her fiscal update. The IoD said its survey showed that, in the weeks leading up to the Budget, ‘persistent speculation over tax rises’ kept confidence subdued with November’s headline index staying at a near record low figure of -73. 

With a snap IoD poll revealing that four out of five business leaders viewed the Budget negatively, it is perhaps unsurprising that confidence failed to rise significantly after the Chancellor’s announcements. Indeed, while the data did show a slight improvement, the one point rise to -72 still left the index languishing around record lows. 

The IoD also noted that some of the survey’s underlying indicators declined significantly after the Budget, with revenue expectations falling to their lowest level since September 2020 and headcount expectations dropping to the third lowest reading ever. IoD Chief Economist Anna Leach concluded, “The message from this Budget is that work remains to be done to lift the UK’s growth prospects.” 

Among the different policy measures unveiled in last month’s Budget, the hike in Dividend Tax rates was a particularly significant announcement for many business owners. 

During her Budget speech, the Chancellor revealed that from 2026/27 onwards, the basic and higher rates of Income Tax on dividends will be increased by two percentage points. As a result, the basic rate will rise from 8.75% to 10.75%, while the higher rate will move up to 35.75% from 33.75%.  

Industry experts reacted negatively to the decision, with Lizzie Murray, Head of Private Wealth at Saffery, describing the move as “another unwelcome change” that will “weigh very heavily on owner-managed businesses.” While Ms Murray did say businesses could consider short-term measures to bring forward dividends ahead of the change, she also stressed that the long-term impact would be “a significant tightening of the tax screw on entrepreneurs.” 

Jason Hollands, Managing Director at wealth management firm Evelyn Partners, suggested the tax hike seemed to be mainly aimed at “extracting more cash from the UK’s small business owners.” He also said that entrepreneurs will see the move “as a kick in the teeth” and suggested many business owners will feel “despondent about the increasingly hostile tax environment.”  

Business groups have welcomed a government decision to drop its long-standing manifesto commitment to provide all workers with the right to claim unfair dismissal from their first day in a job.  

The Department for Business and Trade said that, following a series of constructive conversations between trade unions and business representatives, the government had concluded that reducing the qualifying period for unfair dismissal from 24 months to six months – while maintaining existing day-one protection against discrimination and automatically unfair grounds for dismissal – was a ‘workable package.’ 

A joint statement released by the six business groups involved in the discussions said businesses would be ‘relieved’ the government had agreed to this key amendment, which keeps a qualifying period that is ‘simple, meaningful and understood within existing legislation.’  

The business groups’ statement also suggested the opportunity to hold ‘meaningful dialogue’ along with the ‘constructive nature’ of discussions could be a template for resolving future issues. It did, however, make it clear that the business community still have concerns about many of the powers contained in the Employment Rights Bill, including those relating to guaranteed hours contracts, seasonal and temporary workers and thresholds for industrial action.  

A new research paper published by the Federation of Small Businesses (FSB) suggests small firms in the creative sector are ready to drive growth if given better support and a system that reflects the realities of modern work. 

The paper – Creating Change – proposes a number of ideas to help creatives and support those worried about how artificial intelligence (AI) might reshape their work. Research from the paper shows that, although 75% of small creative businesses see potential benefits from AI, 30% are concerned about abuse of intellectual property rights and 17% fear its impact on the long-term viability of their business. 

To protect originality, the FSB is calling for small creators to be given greater control over how their work is used, the introduction of visible watermarks for AI-generated content to prevent it being passed off as human-made and protection against deepfakes.  

FSB Policy Chair Tina McKenzie commented, “The UK’s creative spirit has always been one of our greatest strengths, but that spirit can’t thrive on talent alone. It needs a system that recognises the realities of modern creative work. AI offers incredible opportunities, but it’s moving faster than the rules that protect the people behind the ideas. Creators are right to want clear safeguards around their work, their voices and their images.” 

Data from the O.C. Tanner Institute’s 2026 Global Culture Report shows that UK employees are more likely to feel part of an ‘inclusive team’ than workers based in other parts of the world. 

The study, which gathered insights from over 38,000 employees in 24 different countries, found that more than three-quarters of UK employees believe their team is inclusive. This was significantly higher than the global average, with less than a third of workers worldwide saying they felt part of an inclusive team.  

Commenting on the report, O.C. Tanner’s European MD Robert Ordever acknowledged that the findings were “encouraging” for employers in the UK, clearly showing they were doing better than many countries when it comes to helping workers feel “appreciated, respected and included.”  

However, he also stressed the importance of not celebrating too soon, adding “much still needs to be done to ensure all employees feel they can be their authentic selves at work.” In addition, he noted that fostering an inclusive workforce was “an ongoing effort,” and said leaders needed to keep driving inclusion at the team level in order to ensure feeling valued becomes part of everyday working life. 

New statutory payment rates for 2026/27 

The government recently confirmed proposed increases to statutory payment rates. Statutory maternity, paternity, adoption, shared parental, neonatal care and parental bereavement pay will all go up from their current rate of £187.18 to £194.32 a week, while statutory sick pay (SSP) will rise from £118.75 to £123.25 per week. The new rates are due to take effect in April 2026. 

Firms fear day-one sick pay changes 

A poll of over 600 business owners conducted by The HR Dept suggests three-quarters of UK firms are concerned about the financial impact of upcoming SSP changes. The survey, however, also revealed that almost half of respondents acknowledge their business has not yet taken steps to adequately prepare for the new legislation, which will abolish the current three-day SSP waiting period leaving employees eligible for sick pay from the first day of absence rather than day four. 

AI expected to shrink workforce 

Research released by the Chartered Institute of Personnel and Development (CIPD) suggests one in six employers believe headcount will reduce over the next 12 months due to AI, with clerical, junior managerial, professional and administrative roles the most likely to be lost. The CIPD is calling for urgent government action in order to support people whose roles are most exposed to AI-driven change.  

Quirky Quote 

“A lovely thing about Christmas is that it’s compulsory, like a thunderstorm, and we all go through it together” – Garrison Keillor 

“We need the government to follow this Budget through with serious, pro-growth measures that restore the confidence small businesses need to grow, invest and hire.” – Tina McKenzie, Policy Chair at the FSB 

“The government should be commended for protecting capital spending, boosting innovation, sticking with the corporate tax roadmap and hiring the planning officers business asked for, but business will still rue a missed opportunity to be bold and press on with much needed tax reform, simplification and alignment of incentives to catalyse business investment and job creation.” – Rain Newton-Smith, Chief Executive of the CBI 

All details are correct at the time of writing (10 December 2025) 

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