Priced out of business: the true cost of staying open

Priced out of business: the true cost of staying open

Britain's small businesses aren't just facing a cost of living crisis – they're trapped in a full-blown cost of doing business crisis. New figures reveal business costs have rocketed by 70 per cent over the past decade, leaving thousands of firms with little choice but to shelve investment, stop hiring and simply fight to survive.

Business leaders say government policies, led by higher National Insurance, wage costs and mounting regulation, have pushed many firms to breaking point. With another Budget looming and fears of fresh tax rises, small businesses are asking a simple question: how much more are they expected to take?

FIRMS HIT BY 70% COST SURGE

New figures show the true scale of the “cost of business crisis” and small businesses are being “priced out of existence”

This phrase caught my eye the morning: ‘Cost of business crisis’. I’ve been going on about the cost of doing business since the beginning of the pandemic. No one seemed to understand that for small and micro businesses, the cost of doing business, added to the cost of living were crises squared. Finally, we have the figures to back that up.

The average mid‑sized firm in the UK is paying £827,000 more a year than in 2016; because of our own government policies, according to new analysis from the British Chambers of Commerce (BCC).

The BCC’s new cost calculator, shared exclusively with City AM, shows business costs have soared 70% in the last 10 years, eviscerating investment, crushing confidence and pushing thousands of small and micro firms into survival mode at best.

The biggest single hit, as many of us have long suspected, comes from the 2024 National Insurance hike, which alone accounts for a quarter of the entire cost explosion.

Tax raids

Labour’s first Budget raised employer National Insurance from 13.8% to 15%, while slashing the salary threshold to £5,000, dragging far more small firms into paying the tax. The increase was designed to raise £25bn a year for the Treasury. For businesses though, it marked what the BCC calls an “inflection point”; the moment costs tipped from difficult to downright dangerous.

Devastated

David Bharier at the BCC, is reported as saying the mounting cost burden has “priced many firms out of growth” and is warning that small businesses are now trapped in a cycle of rising costs, geopolitical shocks and policy changes that are hitting confidence, making them wary of taking any risks, and leading to investment collapsing.

Small and micro businesses, already operating on razor‑thin margins, are the ones feeling it most.

Other policy hits

The BCC says the biggest cost issues for a typical £5m‑turnover, 50‑employee firm include:

• Minimum wage rises under both Tory and Labour governments

• Auto‑enrolment pensions, forcing employers to contribute 3%

• Employer NICs

• The costs of complying with a raft of ever more complex regulations

• And rules that hit some sectors specifically like hospitality, retail, logistics and care

The BCC calculator only covers UK home grown policy costs and not inflation, the impact of Brexit, supply chain shocks, tariffs, wars, or energy volatility. The real costs of doing business are far higher than 70%.

The pressure’s on

With Labour’s next budget fast approaching on 28 October, business groups want the PM and Chancellor to deliver real help. Businesses need more than breathing space, but economists warn there may be more tax rises to come. Capital Economics says new hikes could be “almost as big” as last year’s, when the previous Chancellor raised £65bn across two Budgets. Businesses fear that relief for households could be paid for by demanding they pay more.

Small & micro businesses

The smallest firms are already in dire straits because of higher NICs, minimum wage rises and pension contributions. They have no cash for investment, so equipment upgrades, digital tools, hiring and training are all being pushed back. They’ve stopped taking risks and stopped growing. They’re at risk of going bust because their margins are negligible and they can’t pass on increasing costs in price rises to customers who are already squeezed dry.  

Government says it knows small businesses are struggling and it has a small business plan, but small firms can’t wait for the cavalry to arrive. They need help today.

The BCC’s figures deliver a stark warning. This is a cost of business crisis. We need the government to prove their “pro‑business” promises, because for many small firms, time has already run out.