The UK government has been accused of undermining the foundations of the economy with its autumn budget, after business confidence plunged to its lowest level since the early months of the Covid-19 pandemic.

The Institute of Directors’ economic confidence index, which measures business leader optimism in prospects for the UK economy, fell to -65 in November from -52 in October, the fourth monthly fall in a row.

That is the lowest reading since the record low of -69 in April 2020, and the second worst since the index began in July 2016.

Anna Leach, the chief economist at the Institute of Directors (IoD), warned that the extent of the hit to the private sector through tax rises in the budget would undermine growth and ultimately the public finances as well.

“As businesses continue to absorb the consequences of the budget for their business plans, confidence has continued to plummet and is approaching the lows reached at the onset of the Covid pandemic. Far from fixing the foundations, the budget has undermined them, damaging the private sector’s ability to invest in their businesses and their workforces,” Leach said.

The budget, on 30 October, contained £40bn of tax rises to fund increases in public spending, including £25bn from increased national insurance contributions (NICs) paid by employers.

The IoD’s poll found that most businesses expected to pay higher national insurance contributions after the chancellor, Rachel Reeves, raised NIC rates in the budget. Half of those surveyed expect to make smaller pay rises as a result, with 44% planning to increase prices and 43% cut jobs.

UK hospitality companies warned last month that some would be forced to close, while others would cut jobs and investment because of NIC increases.

Business leaders’ confidence in their own organisations also fell last month, the IoD reported, to the lowest since May 2020, leading to a fall in investment plans and headcount expectations.

Last week, Reeves defended her budget, saying there was no alternative to her plan for putting the public finances “back on a firm footing”.

The IoD hopes that announcements expected in the spring – on industrial strategy, infrastructure and tax reform – will provide a lift to growth.