A record number of British business leaders are preparing for a year of intense financial strain, citing rising taxes, mounting energy bills, and growing wage demands, according to a new survey by the Institute of Directors (IoD).
The poll found that 89% of respondents expect their costs to rise in the coming year, while only 2% anticipate a decline. The survey also highlighted a growing sense of pessimism among UK business leaders, with a net 64% expressing a negative economic outlook—a level not seen since the peak of the COVID-19 pandemic.
Impact of Labour’s £25bn National Insurance Hike
One of the biggest concerns among businesses is the Labour government’s upcoming £25bn National Insurance increase, set to take effect next month. Nearly half of those surveyed said they would cut jobs to absorb the additional costs, while 40% plan to raise prices to offset the financial hit.
Anna Leach, chief economist at the IoD, noted that businesses are grappling with a combination of pressures, including energy costs, inflation, and uncertainty from international policies.
“Amidst downgrades to UK growth forecasts, businesses remain concerned about the health of the economy, as well as the burden of taxes and regulations,” Leach said. “Around half of firms expect to reduce employment in response to these rising costs.”
Bank of England Cautious on Interest Rate Cuts
Adding to the financial strain, Bank of England Deputy Governor Sir Dave Ramsden has warned against premature interest rate cuts, citing concerns over persistently high wage growth. Inflation, which rose to 3% last month, is expected to climb toward 4% by the end of the year, well above the Bank’s 2% target.
Sir Dave, who had previously advocated for faster rate reductions, now believes economic risks are evenly balanced. “Because of the evidence of recent months, I no longer think that risks to hitting the 2% inflation target are mostly to the downside,” he said. “Instead, I think they are two-sided.”
While acknowledging that higher National Insurance contributions could hurt job growth, Sir Dave stated that it is not a sufficient reason to accelerate interest rate cuts. “I am even more certain that a gradual and careful approach to monetary policy is the right course of action,” he added.
Government Defends Economic Policies
A Treasury spokesperson defended the government’s approach, pointing to the latest Budget measures as a way to revive economic growth.
“At the same time, more than half of UK employers will either see a cut or no change in their National Insurance bills,” the spokesperson said. “We are also permanently cutting business rates for the retail, hospitality, and leisure sectors starting in 2026, and we have capped corporation tax at 25%.”
Despite these assurances, business leaders remain wary, fearing that rising costs and economic uncertainty could weigh on hiring, investment, and overall growth in the months ahead.
