We’re being taxed out of existence, companies warn
Investment by British businesses has fallen to its lowest level since the pandemic as companies warn they are being “taxed out of existence”, one of Britain’s biggest business groups has found.
The proportion of firms planning to increase investment fell to just 17 per cent in the second quarter, down from 21 per cent in the first three months of the year, according to the UK’s largest business sentiment survey, conducted by the British Chambers of Commerce.
Confidence also slumped in the three months to the end of June as inflation re-emerged as a concern for companies and less than a third boosted their sales.
Energy costs rose sharply in the second quarter of the year as the war in Iran choked off oil supplies and pushed up prices across Western economies.
Businesses are also still grappling with the hefty tax bill brought on by Rachel Reeves’s first budget as chancellor in 2024, which hiked national insurance payments for employers, the BCC said.
“Most firms are now experiencing policy as downside risk rather than opportunity – with the rise in employer [national insurance contributions] a prominent example, still being felt almost two years on,” said David Bharier, deputy director economics and insight, at the British Chambers of Commerce.
“Reducing the cost and complexity of the administrative burden would give many firms the space to grow.”
One small Yorkshire-based services company told the BCC it was being “taxed out of existence”.
The survey found that just 44 per cent of businesses said they expected improved turnover in the next 12 months, down from 49 per cent when they were asked earlier in the year. Meanwhile, 23 per cent expect a decline in sales.
Retail and hospitality squeezed
The retail and hospitality sector have been hammered by the twin pressures of Reeves’ tax rises and rising inflation.
Both sectors have emerged as the most vocal opponents of the Chancellor’s tax plans since her maiden budget in 2024 and remain those most under pressure, the BCC found.
Under a third of hospitality firms said they expected increased turnover, while 33 per cent expected a decrease, according to the group’s survey. In retail, 32 per cent of companies expected a decrease, the BCC found.
One small hospitality firm in Cambridgeshire told the BCC economic instability has caused its customers to rein in their spending.
“The continued fall in SME investment sentiment is further evidence of a longer-term pattern that no single shock explains,” Bharier said, adding that the government needed to set out a growth delivery test and focus on boosting investment in the private sector.
“Our data shows a risk-aversion cycle taking hold. Firms have not lost ambition, but years of compounding cost pressures and geopolitical shocks have produced defensive behaviour for the average SME,” he said.
“The challenge for the new Prime Minister and his team is clear,” he added.