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Labour has been accused of creating a “hostile environment” for investors, with latest figures showing the UK has the worst investment levels in the G7 group of leading economies. Chancellor Rachel Reeves has been blamed for “shattering” business confidence by hitting companies with tax hikes.

Public and private investment was just 18.6% in the three months to September. This puts the UK far behind Japan, where investment stood at 27.4% of GDP, and the likes of Canada (22.8%), Italy (22.5%) and France (21.8%). The figures have heightened concerns in Labour ranks about the Government’s stewardship of the economy.

The findings come as six out of 10 Britons expect the country will enter a recession in 2026, according to More in Common polling.

A Labour MP, speaking anonymously, warned that the Government appeared to ignore the needs of small and medium-sized businesses “who keep the country going”, adding that hikes to employers’ National Insurance and the National Living Wage would make it even harder for companies to recruit and pay staff and invest in machinery.

Warning of the consequences for the country, the Labour MP said: “We are now at a level where we can’t tax anybody any more, but we can’t borrow any more, so we are really at the mercy of those people we’ve borrowed from, so if they lose confidence in us, we have serious issues.”

The Federation of Small Businesses has warned that sentiment is “closer to dismay than confidence”.

Changes to energy standing charges and a tax hike on dividends are also expected to squeeze businesses.

Andrew Griffith, the Shadow Secretary of State for Business and Trade, said:“Rachel Reeves has shattered business and consumer confidence with her tax hikes and her economic incompetence. It’s little wonder investment in Britain is stagnant.

“Her tax hikes are sending costs for businesses soaring and making Britain less competitive. That means lower growth and higher unemployment.”

He pledged a Tory government would “give businesses the environment to grow” by “scrapping business rates for thousands of high street firms”.

Reform UK deputy leader Richard Tice warned: “With punishing tax hikes and suffocating red tape, this Labour Government has presided over a hostile environment for investors.

“When faced with rising uncertainty and an administration that is ideologically opposed to any semblance of wealth creation, investors are naturally opting to take their money elsewhere. It’s no wonder that business confidence has plunged to record lows.”

He promised a Reform UK government would deliver “bold incentives for wealth creators” and slash “burdensome regulations” while “incentivising more people into work”.

A Government spokesperson said: “Unlike previous Governments, we are investing in our economic future, with over £120billion more in capital investment compared to previous plans and the highest level of public investment for 40 years. We have also changed the fiscal rules so we can prioritise investment alongside the private sector.

“As a result, the National Wealth Fund has invested almost £4billion, leveraging more than £5billion in private investment and creating nearly 12,000 new jobs helping to raise living standards in every part of the country.”