US confidence in UK business environment improves but concerns over tax grow

US confidence in the UK’s business environment increased for the first time in two years, according to a survey, but American firms were also increasingly nervous about the tax regime.

The survey, conducted by Bain and BritishAmerican Business (BAB), showed that US investor confidence in the UK ticked up to 6.6 in 2024, up from 6.5 last year.

The increase came after two back-to-back years of sharp drops, which had been fuelled by political and economic turbulence in Britain as well as the impact of Brexit.

Despite the improving outlook, there were growing concerns among US businesses about the UK’s tax regime. Over 70 per cent of US firms flagged the UK’s tax regime as a top three priority, up from 60 per cent last year.

This was the “only notable adverse shift” among US investors, the survey noted. It was largely due to the recent increase in corporation tax and concern over potential tax rises in the future.

Corporation tax was steadily reduced during the 2010s, falling to 19 per cent in the run-up to the pandemic from 28 per cent when David Cameron entered government. However, in the aftermath of the pandemic, the levy was hiked back up to 25 per cent as the government faced heavy spending commitments.

“Ensuring tax competitiveness is now the top issue for US investors in the UK,” Duncan Edwards, chief executive of BAB said.

“The new Labour government has insisted that growth is one of its biggest priorities and we urge them to create a favourable environment for attracting greater investment from the US,” Edwards added.

Labour has pledged to make the UK a more attractive place for international investors as it seeks to boost levels of investment. Chancellor Rachel Reeves is reportedly planning a trip to New York to attract investment in major infrastructure projects.

Although Labour has ruled out raising corporation tax, there is some uncertainty about other levies given the difficult fiscal situation the new government has inherited.

Capital gains tax has been cited as one potential revenue raiser, and has not explicitly been ruled out by the government.

The survey also showed increasing confidence in UK-EU relations for the third year in a row, although still only at moderate levels. The index on UK-EU relations rose to 6.1 from 5.1 last year, reflecting recent improvements in relations.