How much do regulations cost the average UK business in 2026?
No one single regulation is responsible for British businesses’ current woes; rather, the accumulation of taxes has become greater than the sum of its parts, writes David Bharier
The UK economy is trying to grow with a persistent brake on business investment.
No single policy is responsible, but the accumulation of new costs and obligations has held business sentiment in the slow lane. Government assesses each measure individually, but no one checks their combined effect.
Our Quarterly Economic Survey, based on responses from more than 4,500 firms, shows the results of this. In Q2 2026, just 17 per cent increased their investment, the lowest reading since the pandemic. The share expecting turnover to improve over the next year has fallen to 44 per cent, down from 49 per cent. For hospitality firms, it’s now just 31 per cent.
Labour costs are cited as the top pressure driving prices and taxation has been the leading concern since late 2024. But the bigger problem is in how policy is made, and the mounting complexity SMEs are left to absorb.
Last year, as the Employment Rights Act moved through parliament, 79 per cent of firms said the impact of new government policies was not being properly assessed. The 2024 employer National Insurance increase shows what follows. By February 2025, 82 per cent of firms anticipated a negative impact and one in 10 reported redundancies as a direct result.
The Cost Stack Calculator
The British Chamber of Commerce (BCC) launched its Cost Stack Calculator in the pages of this paper precisely to add up the burden. It models the standing annual cost stack facing a hypothetical firm with 50 employees and £5m turnover, using published rates and holding the firm’s behaviour constant to isolate changes in the cost base.
Between 2016/17 and 2026/27, that annual cost rises from around £1.16m to £1.98m, an increase of 71.5 per cent, and a move from 31.7 per cent to 39.7 per cent of inflation-adjusted turnover.
Dig into the detail and the impacts fall heavily on labour-intensive firms. Wages account for £590,755 of the rise, driven by a statutory floor that has gone from £7.20 to £12.71 an hour. Employer National Insurance on this firm is up 141 per cent and auto-enrolment pension contributions are up 442 per cent. This is before even accounting for Brexit trade costs, global input-price shocks and profit taxes.
Past governments tried a similar measure for assessing the regulatory burden before dismantling it. The Business Impact Target, introduced in 2015, required a running total of the cumulative cost of regulation on business, independently verified by the Regulatory Policy Committee (RPC).
Ministers set themselves a goal at the start of each parliament but missed it every time, most strikingly when a promise of no increase in the regulatory burden produced an estimated £17.2bn rise before the target was scrapped in 2023. The RPC still checks individual impact assessments above a cost threshold, but nothing in government now verifies the aggregate.
The regulation test
When John Healey delivers his first Budget, the central economic task will be to enable firms to invest, innovate and export more. But the true cost of the stack is the part we never see: the investment that never happened.
In the BCC’s Growth Delivery Test developed with our President Andy Haldane, we argue that every measure affecting growth should answer seven questions. Does it change the right behaviour, target the right firms, reach them easily, reduce friction rather than add to it, hold up fiscally, rest on evidence, and produce a result anyone can actually observe?
Answering those questions for each policy is necessary, but not sufficient. Every individual policy may pass the test as the overall drag slows the car further. Without that discipline, the brake will stay on and business sentiment will keep flatlining. The firm employing 50 people should be able to see whether a Budget makes it easier to invest and grow, not discover afterwards that another layer has been added to the stack.
David Bharier is deputy director of economics and insights at the British Chambers of Commerce