‘Cost of business crisis’ as government drives up overheads by 70 per cent in a decade
British companies are facing a “cost of business crisis” as a string of controversial government policies have pushed up an average firm’s expenses by 70 per cent in a decade, one of the country’s largest industry bodies has found.
A typical-mid-sized firm is now paying roughly £827,000 more a year than they were in 2016 as a direct consequence of domestic policy decisions from the government, according to a new business cost calculator launched by the British Chambers of Commerce and shared exclusively with Morning Wire.
Researchers at the business group said around a quarter of the total increase in costs came from former Chancellor Reeves’ decision to hike national insurance contributions for employers at her first budget in 2024.
The tax hike, which aimed to raise an extra £25bn in government revenue each year, involved raising the rate of national insurance contributions for companies from 13.8 per cent to 15 per cent and lowering the salary threshold at which firms start paying the levy to £5,000.
The BCC said Reeves’ raid at the 2024 budget marked an “inflection point” and firms were now facing a “cost of business crisis”.
“This mounting cost burden has priced many firms out of growth,” said David Bharier, deputy director at the BCC.
“As a result, small and medium-sized enterprises (SMEs) investment has suffered,” he added. “Many SMEs are caught in a risk-aversion cycle, where years of compounding cost pressures and geopolitical shocks have bred a defensive posture – a loss of confidence that the environment rewards taking productive risk.”
Other policies that have added to the rising bill for business include a higher minimum wage, which was raised by successive Tory and Labour governments, and pension schemes, which now auto-enrol employees and force some businesses to make contributions at three per cent of earnings.
Those costs made up the “overwhelming bulk of the stack” for firms that make around £5m in turnover and employ about 50 people, the BCC said.
The body has launched a new calculator to allow companies to assess how much their costs have risen since 2016 as a direct result of government policy.
The BCC’s cost calculations take into account domestic policy costs only. The impact of tariffs, higher inflation, Brexit and other global conflicts are not covered in calculations, suggesting the cost of running most businesses has risen far higher than 70 per cent.
Burnham urged to ease business costs
The BCC has shared its calculator with member firms as the private sector looks to press new government ministers on business costs ahead of the Labour Party conference and a crucial Budget on 28 October.
After being made Labour leader, Andy Burnham promised to be “pro-business”. Chancellor John Healey also said providing “breathing space” to businesses would become a priority.
Bharier said that every policy introduced by Burnham and Healey should pass a ‘growth delivery test’ and have a positive impact on businesses’ ability to “invest, innovate, or expand”.
The new leaders’ peace offerings to the private sector follow similar moves made by their predecessors in Downing Street. Before Labour were elected, Reeves had promised to preside over the “most pro-business government this country has ever seen”.
The upcoming Budget could prove to be difficult for Burnham and Healey, who look poised to raise taxes to restore the partly-eroded fiscal headroom and deliver on a host of spending pledges around the cost of living and defence.
Burnham and Healey have so far ordered Cabinet ministers to find savings in their budgets in a bid to ease pressures for households although economists across think tanks and City firms expect the government to raise billions of pounds in taxes.
Capital Economics deputy chief UK economist said there could be tax hikes “almost as big” as those seen in last year, with Rachel Reeves raising more than £65bn over her two budgets. The consultancy expected the burden to now fall mostly on households though reliefs offered to some firms could be closed.
A government spokesperson said: “We know many small businesses are facing challenges, which is why we have introduced a small business plan and we’re reforming business rates with our £4.3bn business rate support package to limit bills rises.
“900,000 employers – more than 40 per cent of all employers – are expected to pay no employer NICs in 2030-31 and we are cutting red tape and taking action on the cost of living to boost high streets.”