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British businesses are being “taxed out of existence”, with the appetite to invest in major projects now at its weakest since the end of the Covid-19 pandemic, according to one of the UK’s largest business lobby groups.
The British Chambers of Commerce (BCC) said on Monday that the proportion of firms planning to increase investment slipped to 17 per cent over the past three months, down from 21 per cent in the previous quarter, according to its latest Quarterly Economic Survey, the UK’s largest independent poll of business sentiment.
The findings lay bare how tens of billions of pounds of tax rises on employers, combined with relentless increases in operating costs, have choked off the capital spending the UK economy has conspicuously lacked since the 2016 Brexit vote.
Since Labour won the 2024 general election, businesses have absorbed an additional £25 billion in national insurance contributions, a bill that has already overshot Treasury forecasts by some margin, alongside steep rises in the minimum wage that have pushed staffing costs sharply higher.
The frustration among owner-managers is palpable. One business owner told the BCC they were “being taxed out of existence”, while another said their firm was suffering “from higher taxation, increased labour and energy costs [that are] stifling growth and investment”. The sentiment echoes earlier BCC polling which found that most UK businesses were rethinking their plans as the tax rises took their toll.
There are, however, signs of movement at the top of government. Andy Burnham, widely seen as the prime minister-in-waiting, has signalled there is “room for movement” on taxation within the constraints of Labour’s election manifesto, which ruled out rises in the main rates of income tax, NICs and general VAT. He has also backed a VAT cut for hospitality and an overhaul of the business rates regime.
David Bharier, deputy director of economics and insights at the BCC, said government policy needed to pass what he called a “growth delivery test”. “Each proposal should start from the question of exactly how it will cause firms to increase investment, exports, hiring or expansion,” he said.
Britain is far from alone in its predicament. Growth across the G7 has slowed markedly since the 2008 global financial crisis, a malaise economists attribute at least in part to a persistent shortfall in both public and private investment.
Inflation, meanwhile, remains the dominant worry in boardrooms. Of the 4,744 businesses the BCC surveyed online, 66 per cent cited rising prices as their top concern over the past quarter, despite oil prices falling below their pre-Middle East war levels and official figures from the Office for National Statistics showing annual inflation came in lower than expected in May, at 2.8 per cent.
The Treasury, for its part, remains bullish. An official said: “This government has the right economic plan, with business investment at 3.6 per cent above pre-election levels, lower than expected inflation and the fastest growth in the G7 for the start of this year. The economy is in a stronger position to deal with the costs of the war in Iran as a result of the chancellor’s decisions.”
For the small and medium-sized firms that make up the backbone of the UK economy, though, the numbers on the ground tell a different story – and until the gap between Whitehall optimism and boardroom reality narrows, the investment the country so badly needs looks set to remain on hold.
