U.K. businesses are preparing to raise prices in response to tax hikes announced in the last Budget.
That was one of the headline conclusions of a British Chambers of Commerce (BCC) report published earlier this month. According to the organisation’s Quarterly Economic Survey, 63% of companies now see tax as a concern and as a result, 55% expect to increase their prices in the coming months. In addition, the poll of 4,800 businesses – the vast majority small and medium-sized – found that only a fifth planned to raise investment. That may make sense in terms of balancing the books, but is it the right long-term solution?
There is no doubt that the decision to raise Employer National Insurance from 13.8% to 15.00% was a blow to many businesses. In addition to increasing the headline rate, the threshold at which employers pay the tax on the workers they employ was reduced from £9,100 to £5,000, meaning there will also be a charge for many part-time staff.
What’s done is done. The question now is whether the tax increases – imposed to raise money for public services – will inevitably lead to higher prices.
The Tax Problem
Back in December, I asked a cross-section of entrepreneurs about the challenges they faced going into 2025. It has to be said not all – or even a majority – cited tax as a major concern but many did see the increases as a potential problem.
For instance, Sam Hussain is CEO and co-founder of HealthTech startup Log my Care, a company selling software to the social care sector. Businesses working in the care industry tend to be labor-intensive and thus likely to be disproportionately hit by the National Insurance Rise. This in turn creates a challenge for those selling to them.
“The Autumn budget has been a nightmare for us and the industry we sell our software into. With Social Care’s costs being largely on staff, the impact of raising the national living wage and national insurance results in their costs going up around 10%. Naturally, this places big pressure on already tight margins and leaves less budget for innovation,” he said.
The company’s response is to focus on value. “We will be more focused than ever on making sure we can demonstrate a return on investment on our software,” he added.
Many businesses – particularly larger SMEs – will be directly affected by the rising cost of hiring staff and will, in consequence, raise prices. The British Chambers of Commerce says, only 40% of businesses expect prices to stay the same against the 55% or plan to push up the cost of their goods and services in the next three months.
To Raise Or Not To Raise Prices
Raising prices does seem like a logical step but not all business owners will feel able and/or willing to go down that road.
Renée Elliott is a case in point. Founder of the Planet Organic organic food retail chain, she recently resumed control of the company after buying it out of administration in 2023, saving ten stores and more than 250 jobs in the process. Going forward, she is determined to adhere to the company’s core mission of providing organic food that benefits buyers and the planet.
As she explains, news that taxes were to rise came after a particularly intense year. “Having just bought the company out of administration – and when I came into the business sales were 50% down on previous levels – we were looking at profitability. The rise in taxes makes the profits we were looking for a lot more difficult. It costs us a lot more.”
Consequently, Elliott says she and her colleagues had to rethink their plans to take the company forward. Their deliberations resulted in three conclusions. The company would not compromise on the quality of its organic products. Nor would it reduce team size or raise prices in direct response to the changes.
“Our intention is to maintain our pricing and manage our pricing as we would anyway. Our response is to manage a way through this by being a bit more savvy,” she says. “We also made a decision not to reduce our team. We weren’t going to respond to the tax increases by letting anyone go.”
So how do you cope with a rise in costs? Elliott acknowledges that the company may have to respond to economic and fiscal circumstances at some stage, but there are other ways to respond to financial pressures. “If in six months time we are on our knees, then there are other things we can do,” she says. “We can look at operational changes. We can look at changing our opening and closing times a little. When you are faced with financial difficulties, you have to be creative.
This is not simply altruism. As Elliott explains, maintaining pre-Budget pricing policies is partly about maintaining trust with the consumer but it’s also important to keep Planet Organic affordable. “If we reacted to the Budget by saying oh gosh, we have to pay a lot more tax so we’re going to whack our prices up, that wouldn’t feel honest to me.”
What feels more honest, she says, is having a conversation about the value of organic food and the benefits of consuming chemical-free produce. “Buying organic food is an investment in yourself and your health.”
On the team side, Elliott says that it wouldn’t be in line with the company’s values to lay off team members. Again there is a commercial logic here in that committed team members play a hugely important role in educating and advising customers on their organic choices.
Not all companies will be in a position to hold prices in the face of rising costs, but a focus on the value proposition potentially offers a means to prioritise long-term growth rather than short-term fixes,
Each company will have its own response to the challenges posed by the budget but emphasizing value is likely to become central to keeping businesses onside. A lot of businesses will raise prices or lay off staff but there are other options.
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