The Labour Government’s Budget tax raid and plans for workers’ rights have led to a collapse in business confidence.

The economic confidence index from the Institute of Directors (IoD) plunged from a three-year high of +7 in July to -12 last month.

Business leader’s confidence in their own organisations also fell from +36 in July to +23 in August, according to the IoD.

Anna Leach, Chief Economist at the IoD, said: “It’s disappointing to see last month’s welcome uptick in business leader confidence snuffed out over the summer.”

She urged Sir Keir Starmer‘s government to “take time” to design the right policies for the long term and deliver a “stable” tax and policy framework to boost business confidence and investment.

Ms Leach added: “Further clarity on the industrial strategy and the business tax roadmap, in conjunction with more progress in engaging with business on workers’ rights, would be welcome.”

Chancellor Rachel Reeves claimed at the end of July that the new Government had found a £22billion “black hole” in the public finances, vowing to take the “difficult decisions” needed to address it.

Last week, Sir Keir warned the October Budget would be “painful” and attempted to lay blame for the country’s predicament on previous Conservative governments.

Businesses have been alarmed by some of Labour’s reported plans to see employees given the right to request a four-day working week from day one of their employment and the right not to be contacted outside work hours.

Labour also wants to restrict fire and re-hire practices and zero-hours contracts. There are also signs Ms Reeves is mulling an increase to National Insurance contributions paid by employers.

Factors having a negative impact on business leaders’ organisations include Britain’s current economic conditions, skills, and labour shortages, business taxes, and employment taxes, according to the IoD.

Business investment intentions for the year ahead dropped 14 points, from +24 in July to +10 in August. This marked the sharpest decline since the beginning of the pandemic lockdowns, the IoD reported.

The collapse in business confidence comes just days after Ms Reeves held talks with the leaders of some of Britain’s biggest business groups on Thursday. She vowed to “co-design” Government policy with them ahead of October’s Budget.

Bosses at the British Chambers of Commerce (BCC), the Confederation of British Industry (CBI), the IoD, the Federation of Small Businesses (FSB) and Make UK were at the meeting.

Ms Reeves said: “Under this new Government’s leadership, I will lead the most pro-growth, pro-business Treasury in our history, with a laser focus on making working people better off.

“That can only happen by working in partnership with businesses, big, medium and small.

“I want to continue the strong partnership we built with business in opposition now we are in Government, to deliver on our shared goal of fixing the foundations of our economy, so we can rebuild Britain and make every part of the country better off.”

Bosses voiced their support after the meeting, but also hinted at the demands they made behind closed doors.

Stephen Phipson, Chief Executive of manufacturing trade body Make UK, said the meeting was “very welcome” but called for “more detail on the delivery as well as vision”.

Shevaun Haviland, Director General of the BCC, said the group outlined its priorities for the autumn Budget, recognising “the public finance challenge”.