But a year on from the Labour Party’s landslide election win, that initial optimism has been replaced by discontent over tax increases, persistent red tape and a lack of dialogue with the government. A spike in borrowing costs and a lack of economic growth haven’t helped matters. Companies say they are being forced to cut jobs, delay investment — and in some cases, move their listings altogether. 

“I’m struggling to see what’s business-friendly so far,” said Bernard Fairman, executive chairman of Foresight Group, an infrastructure investment firm.

The government is faced with a balancing act — appeasing companies as well as the unions that help support the party financially; appealing to its traditional left-wing base while trying to win over Conservative supporters and voters who may be veering toward the populist Reform UK party. At the moment, it doesn’t appear to be satisfying any of them.

Last week’s market turmoil following an emotional appearance by Reeves in Parliament and Prime Minister Keir Starmer’s move to water down planned welfare reforms has fueled concerns that the party has lost the support of business, which it needs to help deliver jobs and economic growth. Talk that the head of Britain’s biggest company would like to move its listing to the US didn’t help.

“We thought we had a really strong relationship, but then those sorts of surprises where we had significant business cost hikes were a kind of reset moment,” said Stephen Phipson, chief executive officer of manufacturing body Make UK.

The Department for Business and Trade declined to comment. 

The British economy was already on shaky ground when Labour took office and has seen little improvement so far. A growth spurt at the start of the year was quickly followed by the sharpest monthly economic contraction since October 2023, driven by US President Donald Trump’s tariffs and the UK government’s own tax hikes.

That’s added to the extent of the economic repair job facing the government. In the run-up to the election, Labour had promised not to touch income tax, value-added tax or national insurance. But shortly after taking office, Reeves declared that a £22 billion ($30 billion) black hole in the country’s finances meant drastic measures would be necessary.

Business has borne the brunt, in the form of higher taxes. National insurance contributions (NICs) paid by employers rose in April, a move the government has said will raise £25 billion a year. At the same time, the minimum wage spiked, dealing a double blow to companies with big payrolls. Retailers such as J Sainsbury Plc and Tesco Plc have complained about the tax rise and announced job cuts.

A high tax burden is “dampening the contribution” retailers can make to the economy, Currys Plc CEO Alex Baldock told reporters on Thursday. “We want to be powering employment and growth, not employing fewer people,” he said.

The rise in NICs has already cost the economy jobs and pushed up food prices as businesses pass on the increase to consumers, according to Bank of England Governor Andrew Bailey. But with policymakers still on guard against sticky price pressures, the central bank is expected to provide only limited borrowing-cost relief.

Last week’s U-turn on welfare reforms has left the government with an additional £5 billion to find. Cabinet minister Pat McFadden said Labour would stick to its election tax pledge, despite the need for more savings.

“The fact that they’ve boxed themselves in, not being able to put up taxes last time round, is going to cause greater pain when they finally put up taxes in this autumn statement,” said Julian Morse, CEO of investment bank Cavendish Plc.

The abolition of a two-century-old tax break for non-domiciled residents — well-heeled residents from overseas referred to as “non-doms” — has also had an outsized impact on the business community. 

A Bloomberg analysis last month showed a spike in departing business leaders, with more than 4,400 disclosing an overseas move in the last year or so. If non-doms leave at the pace some advisers are predicting, recent studies indicate thousands of jobs may disappear along with as much as £12.2 billion over the coming four years.

“If you put taxes up, there are consequences in behavior,” said Foresight’s Fairman. “It doesn’t always mean you raise more money.”

Red tape continues to vex business leaders too. Pascal Soriot, CEO of AstraZeneca Plc, has expressed his frustration at the UK’s regulatory regime for medicines. In January, the drugmaker — Britain’s largest listed company — abandoned plans to invest £450 million in a UK vaccine manufacturing plant, following protracted wrangling with Labour over state funding.

Last week, the London-based Times reported that Soriot would like to move the drugmaker’s listing to the US. Other smaller companies such as Flutter Entertainment Plc and CRH Plc have already switched their primary listings to New York amid frustration with lower valuations in London. 

And a visa clampdown announced in May, seen as an attempt to appeal to voters who might be attracted by Reform UK, will have a big impact on businesses that rely heavily on workers from abroad, in particular care-home operators. Overseas recruitment in the care sector will end within months, a move the charity Care England described as “a crushing blow to an already fragile sector.”

For some CEOs, the bigger concern is lack of interaction with the government. Since the smoked salmon and scrambled eggs offensive, there’s been little dialogue, according to one chief executive who has acted as an advisor to the government. Labour has been open to ideas, he said, but has used them to create policies without a sense-check from businesses. If he were to grade the government’s performance, he added, he would give it a “C.”

He’s not the only person to feel blindsided. “It’s not just the NICs increase, but the inheritance tax increases, the national living wage, that whole package of things,” said Make UK’s Phipson.  “Although it was hinted at, there was no real dialogue.”

The government has announced some pro-business measures, such as capping corporation tax at 25%. But even the long-awaited Industrial Strategy — a welcome grand vision for growing the economy, launched last month — lacked depth and clarity, according to two prominent CEOs, who declined to be named discussing sensitive matters.

That’s at a time when Britain’s ailing industries need all the help they can get. In March, Vauxhall’s Luton van plant became the latest in a series of vehicle factories to close its doors. Earlier this year, the government was forced to step in and take over operational control of British Steel, which owns the UK’s last remaining blast furnace. And the collapse last week of the Lindsey oil refinery in northeast England, one of only a handful left in the UK, further highlighted Britain’s industrial crisis.

Andrew Griffith, the shadow business secretary, said companies were hoping for “some enterprise-friendly stability” under Labour. “In 12 short months, they have been firmly disabused of that,” he said. “Other than a few subsidy junkies, you’d be hard pressed to find a single business leader who backed them then, who still does today,” he said.

Still, after a tough spring, there are signs of some economic green shoots. Britain’s private sector expanded at the fastest pace in nine months in June, according to S&P Global’s closely watched survey. A BOE poll of finance chiefs showed hiring intentions for the year ahead are at their strongest since October. Trump’s tariffs have done less damage than feared, and the UK’s trade agreements with the US, India and the European Union have further calmed anxieties.

A plan to revive investment in new onshore wind farms in England was announced on Friday, almost a year after lifting a de facto ban. 

Still, whatever the positive signs, business is gearing up for a fight if the government wants to lift taxes again. 

The government has laid “solid foundations” for growth, said Rain Newton-Smith, chief executive of the Confederation of British Industry. However, she added, the effects are being limited by the cost burden firms are facing. “Companies have responded by cutting back on investment, hiring and pay,” she added, “making it vital that we avoid further tax rises on business at the next budget.”