“Taxed Out of Existence”: UK Business Investment Hits Post-Pandemic Low

British businesses are scaling back plans to expand and warning that they are being “taxed out of existence.” According to a major economic sentiment survey, local business investment has plummeted to its lowest level since the COVID-19 pandemic.

The quarterly survey, conducted by the British Chambers of Commerce (BCC), reveals that the proportion of firms planning to increase capital investment fell to just 17% in Q2, down from 21% in the first three months of the year.

A Tough Combination of High Taxes and Cost Shocks

The sharp drop in corporate confidence comes as SMEs continue to navigate a punishing mix of high operational costs and ongoing fiscal burdens.

The BCC notes that employers are still reeling from the long-term impact of the 2024 Autumn Budget, which significantly increased employers’ National Insurance Contributions (NICs). Two years on, the cost hikes are still suppressing growth.

Additionally, rising geopolitical instability in the Middle East has pushed energy and fuel costs up sharply, causing inflation to return as a primary concern for local operators.

“Most firms are now experiencing policy as downside risk rather than opportunity—with the rise in employer NICs a prominent example, still being felt almost two years on,” said David Bharier, Deputy Director of Economics and Insight at the BCC. “Reducing the cost and complexity of the administrative burden would give many firms the space to grow.”

Sector Breakdown: Retail and Hospitality Hit Hardest

Unsurprisingly, high-street sectors like retail and hospitality have been pushed to their limits by the twin pressures of tax rises and inflation:

• Hospitality: Less than a third of hospitality firms anticipate an increase in revenue, while 33% expect their turnover to decrease. One Cambridgeshire business noted that financial uncertainty has caused its regular customers to dramatically cut back on elective spending.
• Retail: The outlook is similarly bleak, with 32% of retail businesses bracing for a decline in sales over the next 12 months.

Overall, only 44% of businesses across all sectors expect their turnover to improve in the coming year—a noticeable drop from the 49% recorded earlier this year—while 23% are forecasting an outright drop in sales.

A Cycle of Risk Aversion

The latest data suggests that British SMEs are entering a “defensive” posture. While business owners retain their ambition, years of consecutive economic shocks have forced them to prioritize survival over expansion.

The BCC urges the government and the Prime Minister’s team to establish a concrete “growth delivery test” to incentivize private sector funding, rather than leaving businesses to shoulder the burden of economic stabilization alone.

Source: Adapted from original coverage by City A.M.