Here in the UK we have experienced a significant amount of speculation around tax rate hikes over recent years. Some were just that, speculative, but some of the proposed increases have been introduced to the behest of business and individuals. This article will look into how these current tax rate increases have impacted business growth in the UK as well as how higher tax rates in the future may effect UK businesses.
What does a business need to grow?
A good place to start is what a business actually needs for it to grow consistently at a healthy rate. We understand that in certain industries there are other factors which can drastically influence growth but below are the most common factors which impact business growth:
1. Predictable Demand - Without demand a business will always fail to grow
2. Access to Finance - Retained profits to invest back into the company & a stable cash-flow
3. A Stable & Supportive Policy Environment - When tax policy is unpredictable it is difficult for businesses to have clear long-term plans as they become risk-averse in the uncertainty
4. Competitive Costs - If energy costs, labour and general operating costs are higher then your international competitors then the business is less competitive and less likely to experience growth
Uncertain Policy Environment
In the UK, with each recent budget there has been significant speculation around which taxes are expected to see increases. With this speculation comes uncertainty for all businesses on whether they will be effected or if they narrowly avoid baring the brunt of a tax rate increase.
This uncertainty that is felt by many businesses makes them more reluctant to reinvest any profits or available funds back into the business which would support any business growth. Instead they choose keep the funds readily available, ensuring they have the free cash for any unforeseen tax increases which may can effect their business. The added uncertainty also means that business are focusing more on compliance with new regulations instead of business growth.
Therefore, ensuring that business have a clear and stable policy environment without fear of tax hikes can positively effect the growth of UK businesses.
National Insurance Increase
In April 2025 the UK Government announced that they were increasing the employers National Insurance main rate from 13.8% to 15%. This was matched by a cut to the threshold where the National Insurance payments start from which had been reduced from £9,100 to £5,000 per annum.
In an attempt to help small businesses the Employment Allowance was increased from £5,000 to £10,500 to reduce the National Insurance liability for SMEs. Although the union of a higher National Insurance rate and lower threshold has drastically impacted businesses payroll costs.
This has been most evident within industries with generally lower-paid staff such as hospitality. In 2025 around 370 pubs were closed across England and Wales acting as a glaring sign of how the UK pub industry is faring with the increase of National Insurance. The increase has strangled the business growth that can be generated by hospitality venues meaning that in some cases owner operated pubs are not able to pay the very individual managing the pub a living wage.
Competitive Costs
Another topic which has been very present as of late is tariffs on imported goods and services into the UK. With each day that passes there is the possibility of a new tariff being imposed on the UK. If a rumoured tariff is imposed this can drastically impact the cost to a business when bringing goods into the UK as well as supply chain issues which could halt the manufacturing of goods due to delays to material delivery. All of which can make UK businesses less competitive on an international level as customers are likely to purchase goods somewhere else where the costs are cheaper and therefore the final product is cheaper for the customer to purchase.
All in all the current uncertainty in terms of government policy, increased tax rates, increased costs make worrying times ahead for UK businesses both in terms of business growth and long term survival.
Looking For Further Information?
Hopefully you have enjoyed this article today. If you are looking for more information on topics related to running your small business, feel free to explore our Knowledge Base. If you are looking for any further information, do not hesitate to contact us.
