UK businesses are being told to grow — but the cost of doing business is holding them back
With the October Budget approaching, businesses are being urged to invest, hire and expand — but new figures suggest many are instead keeping their money in the bank as the cost of operating continues to rise.
- Britain’s businesses are being asked to drive growth, but almost seven in ten small business owners say they are unlikely to make a significant investment over the next year.
- The tax bill facing UK businesses reached almost £345bn in 2025/26 — a 12.7% increase in just one year.
- Employer National Insurance has become the biggest individual business tax, with companies paying £123.1bn last year — 28% more than the year before.
- For almost three-quarters of businesses, the cost of employing people is now one of the biggest threats to their competitiveness.
- Businesses are also spending billions dealing with regulation, with the annual administrative burden estimated at £22.4bn.
The government wants businesses to invest, hire and grow. But as the October Budget approaches, there is an increasingly difficult contradiction at the heart of that ambition: businesses are being asked to put more money into the economy at precisely the time many are finding it harder to justify taking on further financial risk.
Recent research from the Association of Practising Accountants found that 68% of small business owners are unlikely to make significant capital investments over the next 12 months — up from 65% last year. The British Chambers of Commerce is also forecasting that business investment will contract by 0.2% in 2026.
Smaller businesses are already facing financial pressure, high operating costs, and a lack of confidence amid economic uncertainty, which has paused investment needed to grow. It can mean putting off the next hire, delaying new equipment, holding off on expanding premises or deciding against investing in a new product or service.
And increasingly, those decisions are being made against a backdrop of rising costs.
UK businesses paid £344.8bn in tax during 2025/26, according to the Confederation of British Industry, 12.7% more than the previous year. Employer National Insurance alone reached £123.1bn, rising by 27.6% and overtaking Corporation Tax to become the largest individual tax paid by businesses.
The rise in Employer NICs is particularly significant for employers. From April 2025, the rate increased from 13.8% to 15%, while the threshold at which employers begin paying it fell from £9,100 to £5,000. At the same time, wage costs have also increased, putting further pressure on employers’ margins.
The CBI says 73% of businesses now see rising labour costs as the biggest barrier to staying competitive.
For a small business owner already operating on tight margins, the additional employment costs can be the difference between making that hire now, waiting another year or deciding they simply cannot afford it, as the cost of an employee extends beyond their salary and the direct impact of Employer NICs.
Oxfordshire-based Chartered Accountants Ridgefield Consulting is also seeing this caution reflected in conversations with its own clients, with businesses increasingly weighing up the cost of recruitment, expansion and other investment decisions against their wider operating costs. For some, that means delaying a new hire or putting expansion plans on hold while they assess whether they have the financial headroom to take on further commitments.
Businesses are also already dealing with business rates, higher wages, regulation and a complex tax system. The CBI estimates that firms spend around eight staff days a month dealing with regulation, with the administrative burden costing businesses an estimated £22.4bn a year.
Simon Thomas, managing director at Ridgefield Consulting, said: “There is a real contradiction in what businesses are being asked to do at the moment. The government wants businesses to invest, create jobs and grow the economy, but businesses are having to make those decisions against a backdrop of significantly higher costs.
“For a small business, growth isn’t just a line on an economic forecast. It can mean putting tens of thousands of pounds into another employee, taking on larger premises, buying equipment or investing in a new service — often without knowing when that investment will pay off.
“When the cost of operating rises, businesses naturally become more cautious about making those commitments. The fact that 68% of small business owners say they are unlikely to make significant investments over the next year should be a concern for policymakers.
“If the government wants businesses to invest, hire and help drive the next phase of economic growth, the Budget needs to restore confidence. Businesses need certainty and financial headroom to take risks — not further pressure on the very businesses it is relying on to deliver that growth.”
The government has made growth and business investment a central part of its economic agenda, with chancellor John Healey calling for a “Growth Britain” built around greater investment, innovation and job creation.
That makes the 28 October Budget an important test of the government’s growth ambitions. While the main rates of Corporation Tax, VAT, National Insurance and income tax are set to remain unchanged, speculation around other areas including Capital Gains Tax and property-related taxes means uncertainty remains.
The priority should be creating the confidence and financial headroom businesses need to invest, employ and grow — rather than adding further pressure to already rising costs.
With almost seven in ten small business owners unlikely to make significant investments over the next year, the question is whether the Budget can give businesses the confidence and financial headroom to move from postponing growth to pursuing it.