- 59% of businesses say tax, including national insurance, is now a concern, the second highest level on record following a peak in the previous quarter
- Business confidence remains subdued, with less than half of firms (48%) expecting turnover to increase in the next 12 months
- A quarter (26%) of businesses have cut back on investment in the past three months, while only 20% have increased investment
- Most firms surveyed (55%) are expecting to put up their prices over the next three months, with labour costs continuing to be the main driver
Ahead of the rise in employer national insurance (NI) contributions coming into effect this Sunday, the British Chambers of Commerce Quarterly Economic Survey for Q1, shows business sentiment remains very weak as taxation continues to be the top concern.
59% of surveyed firms cite it as a worry (compared with 63% in Q4 2024), the second highest level on record. At the same time, concern about inflation has risen to 53% (compared with 47% in Q4 2024), the highest level in a year.
Business confidence remains low, with less than half of (48%) businesses expecting their turnover to increase over the next twelve months (49% in Q4). In comparison, pre-Budget confidence was 58% in Q2 2024 and 56% in Q3 2024. Confidence levels are lowest in the retail industry (38%) and the transport and logistics sector (40%).
The survey was carried out before the recent Spending Review, with the fieldwork conducted between 10 February and 10 March. The data from over 5,000 businesses across the UK (91% of whom are SMEs) also shows that most firms are expecting to raise prices.
Tax remains the top concern, with inflation worries on the rise
With the national insurance rise looming in days, concern about taxation remains the main concern for businesses – cited by 59% of responding firms, down slightly from 63% in Q4 2024. This is the second highest level of tax concern since 2017, when the BCC started asking this question. The levels in certain sectors are higher, with 68% transport and logistics firms, and 64% of production and manufacturing businesses raising tax as a concern.
Concern about inflation has increased since the previous quarter – 53% compared to 47% in Q4. Concern about inflation is most prevalent in the construction industry, with 57% of firms identifying it as a concern. Worry about interest rates remains at 28%, the same level as Q4.
Business confidence remains subdued following Budget measures
Business confidence has fallen further since the immediate aftermath of the Budget. Only 48% of firms say they expect their turnover to increase in the next twelve months, down from 49% in Q4. Once again, this is the lowest figure since the aftermath of the mini budget in late 2022. A fifth (21%) of businesses expect turnover to worsen (the same as Q4), and 31% expect no change.
Profitability confidence also continues to be hit. 39% of firms expect profits to increase over the next year (40% in Q4), while 32% of businesses expect them to fall (same as Q4).
Most businesses are planning to raise prices
Over half (55%) of responding firms say they expect to raise their prices in the next three months, the same elevated level as Q4. While 43% of businesses expect prices to stay the same, and only 3% expect them to decrease.
Labour continues to be far and away the main cost pressure for firms, cited by 73% of businesses (75% in Q4). The issue is most significant for the production and manufacturing sector with 82% reporting it as a challenge, followed by 81% of firms in the transport and logistics sector alongside hospitality businesses.
More firms have cut back on investment plans
As businesses navigate rising cost pressures, 26% of responding firms say they have cut back on investment plans in the past three months, up from 24% in Q4. 20% of business say they have increased investment plans, the same level as last quarter. 54% of businesses say their plans have remained the same.
The issue is more marked in certain sectors, with 40% of hospitality firms and 35% of retailers reporting a scaling back of investment plans.
Business conditions struggle
The percentage of respondents reporting increased domestic sales remains broadly similar to the last quarter, 31% compared to 32% in Q4. 42% reported no change and over a quarter (27%) of firms said they had seen a decrease in sales. Retailers were the most likely to have seen a fall in sales (37%) followed by manufacturers and hospitality firms (35%).
A third of businesses (33%) report a fall in cash flow over the last three months, up
from 30% in Q4. Only 21% of firms have seen an increase, while for 46% cashflow has remained the same.
What businesses say:
“Recent changes to company tax and labour costs have caused us to shelve all
future expansion plans for next 5-years. Over the past 6 months we have reduced
staff levels and will not increase staff for the next 3-years due to the changes to company tax and labour costs. As a result, we will now be moving all future expansion and employment to the USA.”
Small manufacturing firm in Essex
“We have been doubling revenue year on year consistently for the last 4 years. There is too much cash pressure for this to be sustainable for us unless the UK government changes its policy on taxation.”
Small agriculture firm in Dundee & Angus
“NI increase will add £110K to our pay bill this year alone.”
Medium sized construction firm in Greater Manchester
“We will pay around £70,000 more due to change in NI, wages and tax laws.”
Small hospitality firm in Shropshire
“Borrowing cost remains too high & this coupled with increased Employers NI & min
Wage discourages investment & causes cashflow issues.”
Medium sized agriculture firm in Shropshire
“ENICs changes will add £500k to my overheads during the period April – December
2025.”
Large public sector firm in East Midlands
“Increased National Insurance costs will reduce profits by around 25%.”
Medium sized logistic firm in Aberdeen
“The effects of the NIC and NLW changes from the budget are severe and will reduce investment and growth.”
Medium sized manufacturing firm in Northern Ireland
“Inflationary pressures and tax are having a negative effect on confidence for us to continue to invest in projects.”
Medium sized services firm in Liverpool
Shevaun Haviland, Director General of the British Chambers of Commerce, said:
“The national insurance rise has been an impending concern for months. From this
weekend, it will become a toxic reality for millions of businesses across the UK.
“Our survey shows tax continues remains the top concern, with firms telling us they
are planning to cut investment and raise prices, just to balance the books. In the past
24 hours exporting firms have been dealt a further hammer blow by US tariffs. The
cost pressures for business at home and abroad are now huge.
“Sustained economic growth will only come through businesses, not government.
While there were some limited announcements in the Spring Statement which we
welcome – it is hard to get away from the bleak growth predictions.
“We urgently need the government to publish a wider tax roadmap, which includes
national insurance, to give firms a direction of travel to lower cost pressures.
Ministers must also focus on infrastructure projects and promoting exports, as a
springboard for business growth.
“The Employment Rights Bill also threatens to fuel further costs and complexity on
businesses at a very delicate time. While Government has listened and made some
sensible changes – the legislation as it stands risks unintended consequences which
will limit economic growth.
“The Government needs businesses to invest and grow to kickstart the economy.
But unless swift action is taken to ease cost pressures and support firms, growth will
remain elusive.”
David Bharier, Head of Research at the British Chambers of Commerce said:
“It is clear that business sentiment is in a slump following the Autumn Budget last
year and this fresh dataset shows no improvement to that. In some indicators, we
have seen a further worsening.
“This is to be expected as costs have piled on businesses simultaneously. On the
domestic side, tax rises, specifically the NICs increase, are consistently cited by
businesses as a concern. A global tariff war is also a major blow for both importers
and exporters.
“The end result is a low growth outlook, weak investment among SMEs, and damage
to global trade. As we see from the data, as more firms expect price rises, this could
further fuel inflation and limit further interest rate cuts.”
Ross McNally, Chief Executive and Executive Chair of Hampshire Chamber of Commerce said:
“It is evident that business confidence remains low, investment is being held back, and staffing numbers and budgets are constrained. This all adds up to a picture of very tough trading conditions. Adding to this many businesses will have no alternative but to raise their prices having wide-ranging impact on trade. Businesses will do all they can, but Government must get strongly behind their industrial strategy and set a clear path to a tax regime which will incentivise businesses to invest and contribute to economic growth.”
For a summary of the findings see the Info Sheet.
About the QES
The British Chambers of Commerce’s Quarterly Economic Survey is now in its 33rd year as the largest UK private sector survey of business sentiment. The survey is a leading indicator of UK GDP growth and is closely watched by policymakers, including HM Treasury and the Bank of England.
About the BCC Insights Unit
The BCC Insights Unit brings together all the strands of research the BCC undertakes, including the Quarterly Economic Survey, the largest private sector business survey in the UK; the Quarterly Economic Forecast, currently ranked by the Sunday Times as the country’s second most accurate; and a leading programme of business surveys which inform the national economic debate. The Insights Unit was launched on 3 July 2023.