Businesses will raise prices due to tax and wage increases

More than half of businesses plan to raise prices in the next three months as they face a “pressure cooker of rising costs and taxes”, according to one of the world’s largest business groups. United Kingdom.

The British Chamber of Commerce (BCC) said its survey of almost 5,000 businesses suggested confidence had “collapsed”, falling to its lowest level in two years.

Almost two thirds told the BCC they were concerned about taxes following the Budget, which announced an increase in National Insurance Contributions (NICs) paid by businesses from April.

A Treasury spokesperson said the Budget had brought stability to businesses and more than half of employers would see either a reduction or no change to their NI bills.

Rising prices risk fueling inflation at a time when many people are struggling with the cost of living.

While the inflation rate – which measures the rate of price increases – has fallen sharply from record levels in 2022, it increased in October and November.

The BCC investigationconducted after the budget, found that more than half – 55% – of businesses planned to increase prices in the next three months, up from 39% previously.

Shevaun Haviland, chief executive of the BCC, told the BBC that in the face of higher costs, “there’s only a limited amount of things you can do.”

“You need to think about raising prices… or you need to take that drop in your margin, which means you have less money to invest in the future, or you need to review your recruitment and staff costs. So it’s really very difficult.

A closely monitored activity S&P Global Services Sector Survey suggested that in December the sector shed jobs at the fastest rate in almost four years.

“Faced with subdued demand and increases in labor costs, many service providers have chosen to reduce staff recruitment and delay job replacements,” said Tim Moore, chief economic officer at S&P Global Market Intelligence.

“Nearly one in four survey respondents saw an overall drop in their payroll.”

The strength of the UK economy has been thrust into focus following the release of disappointing growth figures just before Christmas.

The latest official data showed that the economy had zero growth between July and Septemberwhile it contracted in October.

The figures were seen as a blow to the Labor government after it made reviving the economy its top priority.

A separate report from KPMG forecasts that the pace of growth will accelerate this year, with economic growth of 1.7% compared to 0.8% in 2024.

He expects consumers to “pick up the pace of their spending” as household incomes are boosted by stronger wage growth and lower interest rates.

However, KPMG warned that the recovery in growth “could come at the price of higher and more persistent inflation, with businesses passing on the cost of tax rises”.

Businesses have already warned that Budget measures such as increasing employer NICs, as well as increasing the National Living Wage, could lead to job losses and price rises.

Kevin McNamee, chief executive of the Denroy Group, a plastics manufacturer based near Belfast which employs 250 people, told the BBC that the combined impact of changes to the minimum wage and national insurance would cost the “Hundreds of thousands of pounds, that’s really significant.”

It was “probably inevitable” that prices of some of their products would rise to try to cover the higher costs, he said.

“The focus now will be on increasing productivity, reducing headcount or certainly not increasing headcount as the business grows and improving that productivity.”

He added that businesses had been “shocked” by the changes to national insurance.

“It’s hard to see how the budget incentivizes businesses to invest to grow, we’ve picked our pockets to some extent here.”

However, Hays Travel owner and director Dame Irene Hays told the BBC she was not seeing a lack of confidence in the travel sector.

Bookings at the company – which employs around 3,500 people – are up 22% since the start of the year, she told the Today show.

Dame Irene said that although changes to NI and the national living wage would increase costs, “we have been around for 45 years now and have run a business through many different administrations”.

“There are always changes in costs … and it’s just a matter of being very careful and managing them as best we can.”

In the autumn budget, Chancellor Rachel Reeves announced that employers’ national security contributions would rise from 13.8% to 15% from April this year.

She also confirmed that the national living wage would rise from £11.44 to £12.21 an hour, also from April.

The BCC collected data from more than 4,800 businesses across the UK between November 11 and December 9. According to the report, 91% of companies surveyed were classified as small and medium-sized businesses, with fewer than 250 employees.

The study reveals that 63% of businesses are worried about taxes. This is the highest level since 2017, when the group of companies began recording the data.

The BCC said confidence had fallen, with 49% of businesses expecting sales to increase over the next year. The business group said this was the lowest level since the end-2022 mini-budget.

“The worrying impacts of the budget are clearly visible in our survey data,” Ms Haviland said.

“Business confidence has collapsed in a pressure cooker of rising costs and taxes.”

A Treasury spokesperson said: “We have presented a single Budget to wipe the slate clean and provide the stability businesses desperately need.

“We have ensured that more than half of employers will see either a reduction or no change to their National Insurance bills.

“We are bringing back political and financial stability, creating the conditions for economic growth through investment and reforms,” the spokesperson added.