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Firms fear record cost surge ahead of Reeves tax raid

by March 2, 2025
March 2, 2025
Firms fear record cost surge ahead of Reeves tax raid

A record number of British business leaders are bracing for unprecedented cost pressures over the coming year, driven by tax hikes, mounting energy bills and rising pay demands, according to a new survey by the Institute of Directors (IoD).

The poll revealed that 89% of respondents expect their costs to climb, with only 2% anticipating a decline.

Pessimism within the boardroom has soared, with a net balance of 64% of bosses expressing a gloomy economic outlook—close to the peak registered at the height of the pandemic. Almost half of those surveyed said they would reduce headcount to cope with Labour’s forthcoming £25bn National Insurance rise, due to take effect next month. Two in five plan to increase prices to offset these additional costs.

Anna Leach, the IoD’s chief economist, highlighted the wider concerns facing UK companies, from the cost of energy and inflationary pressures to uncertainty stemming from policy decisions in the US. “Amidst downgrades to UK growth forecasts, businesses remain concerned about the health of the UK economy, as well as tax and regulatory burdens,” Leach said. “Around half are expecting to reduce employment in response to rising costs.”

Meanwhile, the Bank of England’s deputy governor, Sir Dave Ramsden, has cautioned against lowering interest rates prematurely, citing stubbornly high wage growth. Inflation climbed to 3% last month and is expected to approach 4% by year-end—well above the Bank’s 2% target.

Sir Dave, who previously called for more rapid rate cuts, noted the increased uncertainty facing the economy. He warned that the risk of adding to inflationary pressures means policymakers must tread carefully: “Because of the evidence of recent months I no longer think that risks to hitting the 2% inflation target sustainably … are to the downside. Instead, I think they are two-sided.”

While he acknowledged that Labour’s tax rise could hurt job growth, he no longer deems it sufficient reason to ease rates more quickly. “I am even more certain … that taking a gradual and careful approach to the withdrawal of monetary restraint is appropriate.”

A Treasury spokesperson defended government policy, pointing to its latest Budget as a catalyst to revive growth after a sustained period of stagnation. “At the same time, more than half of employers will either see a cut or no change in their National Insurance bills, we are permanently cutting business rates for retail, hospitality and leisure from 2026 for the first time, and we have capped corporation tax at 25%,” the spokesman added.

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Firms fear record cost surge ahead of Reeves tax raid

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