Businesses are set to increase prices due to rising wage costs and higher employer National Insurance rates. According to the Office for National Statistics, 49% of companies with ten or more staff plan to raise prices in the coming months. The ONS found that 66% of businesses anticipate rising staffing costs, while 26% are considering job reductions. The ONS’s Business Insights and Impacts survey found that just under a third of firms said they would absorb the hit within profit margins. Andrew Bailey, governor of the Bank of England, last week told the Treasury Select Committee that employers might respond to the hike in costs by cutting hiring, reducing hours, or laying off staff. The changes in employer NI contributions, which will rise from 13.8% to 15%, alongside a national living wage increase to £12.21 per hour, are expected to impact the labour market significantly. Oxford Economics predicts a loss of 55,000 jobs and a slight decline in pay growth.

Confidence among UK firms has fallen to its lowest level in four years, with analysis from BDO showing that optimism has declined for the fifth consecutive month. BDO’s monthly index of confidence across British manufacturing industries fell to  91.4 in January, with this down from 92.2 in December and the lowest level since January 2021. Plans to increase employers’ National Insurance contributions and deliver a higher minimum wage, combined with business rate increases, have hit confidence, while also threatening jobs and pushing up prices. BDO partner Kaley Crossthwaite said businesses will need “continued support” to achieve growth.

Data shows that B Corp-certified small businesses outperformed their peers in 2023/24, with revenue growth of 23.2% compared to the national average of 16.8%. These companies also saw a 9.6% rise in headcount, while broader business hiring declined by 0.5%. The B Corp movement, launched in the US in 2006 and introduced in the UK in 2015, assesses businesses on governance, workers, community, environment, and clients. Despite its success, B Corp has faced criticism for accrediting large multinationals and concerns over greenwashing. In response, it is developing stricter certification standards to ensure consistent performance across areas such as human rights, fair wages, and climate action.

Businesses are scaling back hiring and preparing for layoffs due to the £40bn tax increase set out in October’s Budget. The latest report from KPMG and the Recruitment and Employment Confederation (REC) indicates that the jobs market is contracting, with demand for permanent roles declining for the 18th consecutive month. The report says weaker confidence around the economic outlook and rising payroll costs has led firms to pause hiring. With businesses facing higher costs, many are also considering price increases and cancelling pay rises. Jon Holt, group chief executive and UK senior partner at KPMG, said many companies are treading carefully, with a “wait and see approach to hiring,” while Neil Carberry, chief executive of the REC, has urged the Chancellor to foster growth, saying: “Enabling companies to grow is at the heart of our prosperity.” Meanwhile, a survey by iwoca shows that about 300,000 SMEs plan to reduce their workforce to manage an increase in employers’ National Insurance contributions.

Rupert Soames, president of the Confederation of British Industry, has voiced concern that the Government’s employment reforms are “highly damaging” to companies’ willingness to invest and hire. Despite recent amendments to the legislation, Mr Soames believes the Employment Rights Bill will deter both domestic and foreign businesses from expanding their workforce in the UK. He has also highlighted that the reforms come amid significant increases in employment costs, including changes to employers’ National Insurance and the living wage, as well as increases in business rates and taxes on the “intergenerational transfers of business assets.” These factors, he said, are “deeply damaging to investment and growth,” adding that Government estimates suggest they will add £5bn to companies’ costs.

With a number of the world’s largest companies moving away from remote and hybrid working, Alex Morgan, founding partner at Morgan Real Estate, says ensuring there is space for everyone in offices “really is the bare minimum in a series of steps needed to bring workers back in full-time.” He suggests that “an environment that employees want to be in; that outguns the comfort of the no-commute or the glare of management, will be key in attracting and retaining talent over the longer-term.” While analysis from JLL in 2024 found that half of all employees said they were commuting to the office fewer than three days a week, KPMG’s CEO Outlook survey indicates that 83% of UK CEOs expect employees to work in-person five days a week within three years.

Senior financial services executives have warned City Minister Emma Reynolds that plans to apply VAT to investment funds could cost the industry an extra £147m a year and deter foreign investors. Ministers could now step in and block HMRC from imposing the 20% levy on third-party fund management operations. The Government was urged to consider the impact of ending the VAT exemption in December, with UK Finance, the Association of British Insurers and the Investment Association telling the Treasury that imposing VAT on funds would “damage the UK’s reputation as a stable, predictable and welcoming place to do business.” A Government spokesperson said ministers will continue “to meet with stakeholders to understand the impact” of any tax reforms. Robin Prince, a VAT partner at MHA, said the Government reconsidering HMRC’s proposal is a “positive development.”

Shops, restaurants, and pubs in England are set to face an additional £1bn in taxes due to a reduction in business rate discounts from 75% to 40% starting next month. According to Ryan, a tax and software firm, the change will disproportionately impact London businesses, which will contribute £309.7m to the extra tax burden. Alex Probyn, a property tax expert at Ryan, said this “comes on top of a tsunami of other rising costs, making it a complex and challenging environment” for businesses. The Government has vowed to lower business rates for smaller firms by 2026. However, the average business rates for retail, leisure, and hospitality firms are projected to rise by 140%, with average shop bills rising from £3,589 to £8,613 for the 2025/26 tax year.

Rachel Reeves has been urged to scrap the tourist tax, with retailers arguing that restoring VAT-free shopping for visitors from overseas could attract shoppers to the UK. Paul Alger, international business director of the UK Fashion and Textile Association, said that with President Donald Trump’s proposed tariffs potentially meaning higher prices in America, US consumers “will be more willing to travel abroad to catch a bargain.” Those calling for an end to the tourist tax say that scrapping it will not only boost retail businesses but also bring more trade for the hospitality sector.

Executives and financiers are proposing a rebranding of the London Stock Exchange’s Alternative Investment Market (AIM) as the Global Growth Exchange to attract new investors. A source has revealed that the plan would involve LSEG spinning off AIM to allow new investors to come in. However, an LSEG spokesperson said AIM is “not for sale,” insisting: “It is a vital component of our strategy to build a funding continuum that is seamlessly connected so that companies can start, grow, scale and stay in the UK. Jon Prideaux, the former CEO of fintech firm Boku who is leading the group calling for reform, said: “We believe that there’s an opportunity for the London ecosystem to provide a compelling public alternative to many companies worldwide.” Tim Cockroft, chair of Singer Capital Markets, an adviser to AIM-listed companies, said his firm would be interested in backing a plan for LSEG to spin off its smaller market, should LSEG be open to the idea.

The Government is planning new performance targets for regulators in a bid to accelerate innovative technologies, attract investment, and enhance regulatory efficiency as part of plans to drive economic growth.

BBC News looks ahead to Rachel Reeves’ Spring Statement, which will come alongside the Office for Budget Responsibility’s (OBR) forecast on the UK economy which is due on March 26. The OBR forecast is expected to confirm that the Chancellor’s £9.9bn financial buffer has been wiped out. While many analysts have suggested that welfare spending may be targeted, the Chancellor may also reduce the £20,000 tax-free annual limit in cash ISAs in a bid to encourage more people to invest their savings in stocks and shares. While the Spring Statement will deliver spending cuts rather than tax hikes, the Chancellor may extend the freeze on income tax thresholds. Ms Reeves could also detail how international aid funding will be reallocated after the Prime Minister announced that UK defence spending will rise to 2.5% of national income by 2027. The Chancellor has vowed that any economic plans will adhere to “non-negotiable” rules that the Government will not borrow to fund day-to-day public spending and that ministers will get debt falling as a share of national income by the end of this parliament

Inflation is likely to rise to 3.6% this year and remain “well above” the Bank of England’s 2% target until late 2026, according to Edward Allenby, UK economist at Oxford Economics. He says that several factors are set to drive inflation, including measures set out in October’s Budget such as the hike in employers’ National Insurance contributions and the 6.7% increase in the national living wage. He warns that SMEs are expected to be hit especially hard by higher costs, potentially leading to staff reductions and price increases.

With defence spending set to be increased from 2.3% of GDP to 2.5% by 2027, Anne Ashworth in the Mail on Sunday explores the concept of ‘securonomics’ – policies which aim to make Britain more secure and more resilient against future shocks. She says higher defence budgets “could be the spur to ground-breaking innovation,” with Carl Stick, manager of the Rathbone Income fund, noting that “the technologies that have changed our world such as the jet engine, radar, GPS systems – and the internet – were all born from military necessity.” Ms Ashworth highlights the potential benefits for UK manufacturing, with Chancellor Rachel Reeves having pledged to “fire up Britain’s industrial base and unleash its potential to keep the country safe.”

Mark Mullen, chief executive of Atom Bank, has criticised the trend of employers enforcing office attendance, labelling it “old-fashioned command-and-control thinking.” He argues that the rise of digital technology and AI has transformed work dynamics and suggests that mandatory attendance does not enhance productivity or morale. Considering suggestions that remote work means decreased productivity, he said: “I don’t buy it, show me the evidence.”