What Impact Is The Negativity Surrounding The Forthcoming Budget Having on Advertising?

When British chancellor Rachel Reeves stands to address the House of Commons to deliver the autumn budget, her first since taking on the job, it will have been 119 days since Labour took power.

In that time, there has been practically no honeymoon period between the far-right riots, the controversy over the level of freebies prime minister Sir Keir Starmer and comrades have been receiving, and the volatile response by other MPs over the decision to cut the winter fuel allowance for pensioners. If there was a moment when all seemed rosy in the Labour garden, then it’s already long gone.

And since taking over the running of the country there has been a constant air of doom and gloom in the messaging coming from the government about public finances and the need to make cuts to shore up a £22 billion 'black hole' (but don’t say austerity).

"Frankly - things will get worse before we get better” was Starmer’s admission in August when warning about the difficulties the UK still faces in the coming months. In short, it’s not been all smiles and positivity coming out of Downing Street, despite falling inflation, higher wages, and solid employment levels.

Accordingly, after a prolonged cost-of-living crisis, businesses are concerned about what they might find when Reeves opens her red box at the end of the month to retrieve her speech.

The Institute of Directors (IoD) Economic Confidence Index saw business leader confidence decline in September to -38, the lowest level recorded since December 2022. In August it was sitting at -12.

Anna Leach, chief economist at the IoD said that the dive was due to its members’ concerns around likely tax increases, the cost of workers’ rights, international competitiveness and the UK economic growth plan in general.

“There are a number of policy announcements forthcoming which could help foster a more supportive environment for growth and investment and underpin an improvement in business confidence. In the next few weeks we expect to see more detail on industrial strategy, the business tax roadmap and a likely update to the fiscal rules to better recognise the contribution of public sector investment to the UK’s asset base. These all have the potential to create a more steady environment for business decision-makers in the UK,” explained Leach.

Meanwhile, perhaps a little more in hope than in expectation, Simon Roberts, chief executive of Sainsbury’s, has expressed the need for the budget to lift the confidence of consumers to increase their buying during the vital retail period of the Golden Quarter.

"Consumers inevitably are wanting to be clearer about what's going to happen next and for that reason, we see a continued caution in discretionary spending," he told Reuters. "We need to see interest rates continue to come down because that directly impacts household spending. I think clarity in the budget, one way or another, is helpful." 

And the advertising sector is sitting waiting to count the cost, one way or another, of the business impact the budget is already having due to the nervousness it is creating. This is despite it being a sector that can improve confidence in consumers if utilised to correctly. After all, advertising can drive business growth while increasing optimism across the nation if given the chance. However, it seems some marketers are holding back on their spend commitments for the moment in fear.

Procter & Gamble’s longstanding marketing chief Marc Pritchard never tires of claiming when times are difficult that investing in advertising grows sales and helps brands get ahead of the competition. This might be another moment for companies to remember that during any stall on spend.

Given the uncertainty, we asked agency leaders to deliver their take on the current position for UK business as it holds it breath (and purse strings) waiting for clarity on what Labour intends to do next.

Sarah Golding, partner, T&Pm

The government's narrative, so far, has been one of "tough choices" and "difficult decisions," a soundtrack that inevitably casts a shadow over consumer and business confidence. But my sense is that business leaders see glimmers of light on the horizon and are not reading Rachel Reeves' narrative about the need to balance the government’s books as a warning that our wider economy is in for a shock.

Yes, there's a sense of uncertainty. At home, the cost-of-living crisis continues to bite. Internationally, armed conflict and the potential of political turmoil are unsettling. But amidst these challenges, I see cautious optimism in the business community ahead of the budget for three reasons:

• Resilient consumer spending

Despite economic pressures, consumer spending has remained relatively robust, with strong retail sales figures reported in August. The Chancellor seems very unlikely to break with her pledge not to increase income tax, VAT or National Insurance, so the expectation is that consumer spending will remain healthy.

• Focus on growth

The government has a stated commitment to investing in innovation and technology to grow the economy. There are rumours that the budget will include changes to fiscal rules to facilitate this investment. This additional government investment could create a favourable environment for businesses; in her speech to the Labour Party Conference last month, Reeves talked about the need to support industries of the future, mentioning sectors like clean technology, life sciences, and the automotive industry. 

• Support for skills development

Some commentators believe there will be initiatives in the budget to address skills gaps, such as apprenticeships, retraining programs, and funding for adult education.  Were this to happen it should help growth in sectors that have struggled to find skilled talent, such as engineering, manufacturing, healthcare and technology. If these initiatives can help some of the 9 million working-age Brits who are currently economically inactive start work, it should also give a boost to the wider economy. 

Thomas Laranjo, chief executive, Total Media 

The government's “downbeat” assessment of the current UK economic outlook, combined with the seemingly perilous state of government finances,  is undeniably having an impact on consumer confidence and in-turn impacting businesses near and long-term planning. However, it is neither the assessment nor the more “grownup” tone of this government that is an issue. In fact, it is a welcome relief to see populist, bombastic, chaotic and simple narratives replaced with something more recognisably ministerial. The problem is the lack of a detailed plan to support the growth of a fairer, more buoyant economy. 

"The challenge is enormous but don’t worry we‘re here and this is the answer”, is a process that should sound achingly familiar to anyone in the consulting business and while it is not unusual or unwarranted to lay out the problem in great detail, businesses urgently need this government to show how they plan to be part of the solution. We all need to know what the sunny uplands are and how we are going to get there. If the plan requires short-term, difficult adjustments, businesses can and will adapt but it needs to be in the service of a positive and brighter future that stimulates rather than suppresses investment.

I think the government will find a way to balance the books so that we are spared dramatic changes in either tax or departmental spending but even if this where to be the case, we are still left with the question of what next? How does UK Plc retain its place as a globally preeminent economy? Many of the brands we work with and agencies we compete against are full of wonderful ideas about how to grow sustainably, they simply need a clear framework to invest into. 

Conrad Persons, president of Grey London

The mood music at a macroeconomic level hasn’t been good for some time. So, the pessimism around the autumn budget has felt less like a shock and more like continuity. But the impact hasn’t been that clients have stopped spending; it’s that they’re spending with an abundance of caution and care. This means that for every conversation about creative ambition there’s also one about effectiveness, that a decision that once took a single week now takes an entire season, that pitch processes have become long and Darwinian as clients exhaust every potential option before making a choice.

Tom Knox, chairman of MullenLowe UK

The reason why optimism is so important to the economy is that it drives measurable consumer outcomes- optimism makes you move up the property ladder, optimism makes you buy a new car, go for that promotion. The advertising industry is 100 per cent the optimism promotion business. As long ago as 1759 Dr Johnson wrote “Promise, large promise, is the soul of an advertisement”. The current narrative of unremitting gloom coming from the government in the run-up to the budget is unquestionably denting consumer confidence and it is to be hoped that the chancellor will have some words of cheer for the future.

Michael Frohlich, EMEA chief executive officer and chief transformation officer, Weber Shandwick

I hate to use an old-fashioned word, but this budget could have all the markings of another ‘era of austerity’ (Osborne 2.0). The doom and gloom of the Labour Govt will not end as they try and ‘fix’ the economy, still hurting from Liz Truss’s nail in our economic coffin. The knock-on effect across many sectors will be reduced spending and nervousness about what’s to come.