LONDON—July 18, 2021—US companies operating in the UK have seen their confidence in the British business environment dented by the ongoing impact of Brexit, along with anxieties over a rising corporate tax burden and increasing shortages of skilled labour, according to the latest Transatlantic Confidence Index issued today by BritishAmerican Business and Bain & Company.
The blow from Brexit to American businesses’ view of the business and investment environment offered by the UK is the biggest change in the Confidence Index from the high levels shown by its launch edition last year.
The “progressive impact of the UK-EU split” is the predominant reason for a fall in sentiment seen among US firms in the index. US survey respondents cited this as one of the “most unattractive aspects of doing business in Britain”, with persistent challenges over the UK-EU relationship having persisted, creating heightened political and regulatory uncertainty.
American businesses also singled out the prospect of a rising business tax burden and difficulties in attracting skilled workers as among their top concerns affecting their confidence for future investment in UK operations.
Today’s report highlights that heightened concern over the UK business tax regime is likely to have been fuelled by the UK Government’s controversial plan to increase the main rate of corporation tax next year from 19% to 25%.
The contentious corporation tax proposal has been thrust to the centre of political debate in the UK, with senior Conservative MPs and ministers who are vying to succeed Boris Johnson as the party’s leader and the next UK Prime Minister, taking starkly opposing positions over the plan.
UK skills shortages emerged in the Confidence Index as the other key concern among US business operating in Britain. Despite the UK’s post-Brexit efforts to relax its immigration framework to allow more workers to enter the country, a significant number of American firms reported ongoing labor shortages which they said cannot be met locally. The number of survey respondents with a negative view of the UK immigration and visa system outweighed those with a positive view by eight-to-one, making this the most negative overall factor in the UK business environment assessed by the Index.
However, despite these increased concerns over Brexit, taxation and skills, US businesses overall sentiment in the UK was only marginally lower than a year ago, with survey participants still reporting relatively high confidence. On a scale of 1 to 10, the average confidence rating reported fell to 7.3 for 2022, from 7.8 in 2021, while one in five respondents said their confidence in the UK is increasing. Although positive, this is fewer than in the previous edition of the Index. Last year, almost a quarter of companies expected their confidence in UK business conditions to increase over the next two to three years.
Today’s report reveals that what US companies want to see from the UK is clear and that to ensure their future investments they want the British Government to look to repair its political and trade relationships with the European Union – an issue also at the forefront of the race to be the next UK Prime Minister.
Pursuing a US-UK Free Trade Agreement remains a high priority for US companies, although less notably than in the previous edition of the Index. The report finds this may reflect the current, unfavourable transatlantic political conditions for such a deal.
Instead, companies are more focused on solving the immediate problems in the transatlantic corridor without a full FTA. Specifically, companies are eager to improve business mobility and want to pursue joint initiatives around sustainability to forge new business opportunities. US companies also would like to see greater clarity around the UK’s industrial strategy and support an expanded trade agenda with the rest of the world. However, the UK’s “Levelling Up” agenda was not seen as a priority for attracting increased foreign direct investment from the US.
UK business confidence in the US continues to run at high levels
UK companies meanwhile have much higher confidence in the US as a place to conduct business than US companies have in the UK. One the same one-to-ten scale, UK respondents’ average UK confidence rating was 8.0.
However, UK companies struggle with the US immigration system and practical barriers to business mobility. Problems associated with business mobility are seen as the most unattractive aspect of the US by UK companies, which also cited concerns over the US tax environment and political stability.
UK companies have a straightforward request from the US government: To attract future investment, they want the US to recommit to a clear trade agenda. An overwhelming majority of UK companies want the US to relaunch a comprehensive global trade agenda. They also want the US to take the lead on issues around sustainability. UK companies indicated moderated views of the Biden Administration’s “worker-centric” trade policy with their detailed responses suggesting they respondents do not fully understand what the policy entails. At the same time, UK companies strongly favour US-UK trade talks continuing.
Transatlantic corridor a source of strength amid geopolitical and economic stress
Today’s report emphasises the case for a strong transatlantic trade corridor between the US and UK as trusted partners, with the case for this being underlined at a time of rising geopolitical and economic stresses.
Duncan Edwards, CEO, BritishAmerican Business said: “The results from this survey illustrate that whilst overall confidence in the UK-US relationship remains very strong, transatlantic businesses operating in the United Kingdom are slightly less confident in it as a place to do business than last year. Concerns over the UK’s post-Brexit relationship with the European Union, its future tax competitiveness, and perceived restrictions to labour mobility and access to talent are the driving force behind this slip in confidence.
“Addressing these concerns must be prioritised by the next Prime Minister and their Government if the UK is to stay as the leading place to do business for transatlantic investors. However, we are nonetheless encouraged to see how UK companies are taking advantage of the United States' business-friendly environment to accelerate growth and expand their business. The US government would do well to capitalize further on this high level of confidence in its market”.
Jonathan Frick, partner at Bain & Company in London, said: “The business and economic partnership between Britain and America is a vital bulwark of stability. With economic stresses and recession fears rising, along with intensified geopolitical tensions, these relationships have rarely been more important. It’s the importance of these connections to the UK and US, as an anchor for businesses in both countries, that led us to partner with BritishAmerican Business on this study.
“It’s reassuring to see that transatlantic ties remain very strong. But the survey also highlights some important areas of concern – on both sides of the Atlantic – that both businesses and our governments should be thinking hard about, so that we can continue to bolster the transatlantic corridor to our mutual advantage.”
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