UK Businesses Are Being Asked to Grow, but Rising Costs Are Restricting Investment
As the October Budget approaches, new evidence suggests that taxation, employment costs and uncertainty are making businesses more cautious
This article is based on a press release supplied by Ridgefield Consulting. It has been edited by the Skills 2 Grow – Business Journal for clarity and supplemented with independent analysis. Research findings are credited to their original sources.
UK businesses are being encouraged to invest, recruit and expand, but new evidence suggests that many owners are becoming increasingly cautious about making significant financial commitments.
As the Government prepares for the Budget on 28 October 2026, businesses are being asked to help generate economic growth while simultaneously managing higher employment costs, taxation, regulation and wider operating pressures.
For smaller businesses, investment can involve employing another person, purchasing equipment, expanding premises, developing a new service or committing money to technology and marketing. Each decision carries financial risk, particularly when margins and cash reserves are limited.
Almost seven in ten owners are reluctant to invest
A survey reported by The Times found that 68 per cent of 272 owner managers questioned by the Association of Practising Accountants said they were unlikely to make a significant capital investment during the next 12 months.
This increased from 65 per cent in the previous year. The finding represents the owners surveyed rather than every UK business, but it provides a significant indication of caution among smaller firms.
The British Chambers of Commerce has also forecast that business investment will contract by 0.2 per cent during 2026. This sits uncomfortably alongside the Government’s ambition to make private investment a central driver of economic growth.
Businesses paid almost £345 billion in tax
The scale of the pressure is illustrated by figures published in the Confederation of British Industry’s Room to Grow report.
According to the CBI, businesses paid almost £345 billion in taxes during the 2025/26 financial year. This represented 31.3 per cent of all UK tax receipts and an increase of 12.7 per cent compared with the previous year.
Employer National Insurance contributions reached £123.1 billion, an annual increase of approximately 28 per cent. This made Employer National Insurance the largest individual business tax identified in the report.
From April 2025, the Employer National Insurance rate increased from 13.8 per cent to 15 per cent. The earnings threshold at which employers begin paying the contribution also fell from £9,100 to £5,000.
The effect is particularly important for businesses employing people on lower and moderate salaries. Employers now begin paying National Insurance sooner while also meeting wage, pension, training and administrative costs.
The true cost of recruitment extends beyond salary
The CBI reports that 73 per cent of businesses identify labour costs as the greatest threat to labour market competitiveness.
For an owner considering another employee, the decision is not based only on salary. The total commitment can include Employer National Insurance, workplace pension contributions, holiday entitlement, training, equipment, insurance, management time and the risk of supporting the position if revenue falls.
When these costs increase, businesses may delay recruitment, reduce working hours, use contractors or decide not to create the position. This can protect cash in the short term, but it may also restrict capacity and prevent the business from accepting new work.
Oxfordshire businesses are showing the same tension
Ridgefield Consulting, an independent firm of Chartered Accountants serving clients from Oxford and Henley, says it is seeing this caution reflected in conversations with its clients.
Businesses are increasingly assessing recruitment and expansion decisions against their wider operating costs. For some, this means postponing an appointment or delaying expansion while they determine whether they have enough financial headroom to accept another long term commitment.
Simon Thomas, Managing Director of 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.”
He added:
“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.”
The Budget will test the Government’s growth ambitions
Chancellor John Healey placed investment, innovation and employment at the centre of his economic message in his Growth Britain speech on 7 September 2026.
The speech acknowledged that energy bills, regulation, planning constraints and labour costs have risen since the pandemic. It also presented business confidence, investment and profitability as essential components of the Government’s growth plans.
The Budget will therefore be an important test of whether the Government can translate that ambition into conditions that give businesses greater certainty and room to invest.
Julian’s analysis
In my view, the central issue is not that business owners have stopped wanting to grow. It is that confidence and financial capacity are not the same thing.
The Skills 2 Grow Oxfordshire Small Business Confidence Survey 2026 found that 73.5 per cent of its 102 respondents rated their confidence at four or five out of five. It also found that 58.8 per cent expected their businesses to grow during the following 12 months.
However, 73.5 per cent also reported that operating costs had increased. Transport and fuel were selected as a cost pressure by 60.8 per cent, tax by 52.9 per cent and advertising and marketing by 34.3 per cent.
The survey was voluntary and provides a snapshot of participating Oxfordshire business decision makers rather than every business in the county. Nevertheless, it shows an important tension. Owners can remain ambitious and optimistic while having less money available to support that ambition.
I work with small businesses and have also built businesses of my own. Growth usually requires an owner to accept a cost before receiving the result. Advertising is paid for before all the customers arrive. An employee must be paid before their work produces additional revenue. Premises, equipment and technology can require substantial commitments before the return is known.
When costs rise across several areas at the same time, sensible owners become more selective. That caution should not automatically be interpreted as a lack of ambition. In many cases, it is responsible financial management.
The Government cannot simply tell businesses to grow and assume confidence will follow. Owners need stable policies, understandable costs and enough financial headroom to take calculated risks.
From postponing growth to pursuing it
The evidence presents a difficult picture. Businesses remain essential to investment, employment and productivity, but the costs associated with operating and employing people are reducing their ability to act.
The October Budget provides an opportunity to improve that position. Measures that offer stability, reduce unnecessary complexity and allow businesses to retain more money for productive investment could encourage owners to move forward with decisions they have postponed.
Growth is not created by ambition alone. It requires businesses to have the resources and confidence to commit money today in pursuit of a result that may take months or years to achieve.
If the Government wants businesses to invest, recruit and expand, it must create conditions in which taking that risk feels commercially responsible.
About Ridgefield Consulting
Ridgefield Consulting is an independent firm of Chartered Accountants providing accountancy, taxation and business advisory services to individuals, entrepreneurs and businesses. The firm serves clients through its Oxford and Henley offices.
Sources
Contributor: Simon Thomas, Ridgefield Consulting
Julian Frincu
Founder of Skills 2 Grow, supporting start-ups and customer experience.
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