Chancellor Rachel Reeves needs to strike a positive tone at her first budget on 30 October in order to give businesses the confidence to invest, the Confederation of British Industry said on Tuesday.
After winning a large parliament majority on 4 July, Reeves and prime minister Keir Starmer said the former Conservative government had left a dire economic legacy, including a 22-billion-pound hole in the public finances, which they said were in the worst state since World War Two.
Business and consumer sentiment weakened last month, partly out of concern about higher taxes, and the CBI said it was important the Reeves struck the right tone on 30 October.
"We recognise the chancellor is walking a fine line with limited fiscal headroom. While we cannot risk the economic stability that is the bedrock of growth, we must be ambitious in our vision with government laying the foundations for a prosperous future," CBI chief executive Rain Newton-Smith said.
Reeves has said taxes are likely to have to go up by more than Labour had planned before the election. But with Labour saying it will stick to its pledge not to raise headline rates of income tax, national insurance or value-added tax, some businesses are concerned that they will be targeted.
The CBI said Labour should set out a five-year roadmap for business taxation, including which areas were likely to be reviewed, similar to the approach taken by the Conservative-led coalition government in 2010.
The Federation of Small Businesses, which also released a set of budget requests on Tuesday, called for Reeves to fulfil an election pledge to reform business property taxation to help small retailers and also to ensure a partial exemption on social security charges kept pace with the rising minimum wage.
Labour has said it will keep the headline rate of corporation tax unchanged but has left the door open to other changes which would raise the overall tax burden.
Other areas where the CBI called for change included greater flexibility on which training courses were eligible for apprenticeship funding, tax breaks for green investment and spending on healthcare for staff and a nationwide rollout of funding for digital investment by smaller firms.
