Our government is an abysmal omni-shambles. How much more damage can it inflict on small businesses over the next three years? By ADAM BERNSTEIN
IT’s not far off two years from when Labour won the 2024 general election and since then, government has changed the economics of existence for private individuals, employers and businesses.
Worryingly, given that CFJ readers are part of a construction-related industry with a target for 1.5m new homes by August 2029, news that construction and allied trades are in the doldrums, and the target is off the horizon, isn’t good
Indeed, CityAM reported in March that the Construction Plant-hire Association (CPA) had said employment costs and tax burdens were damaging the sector.
Steven Mulholland, CEO, backs Labour’s ‘build, baby, build’ mantra but said his members are feeling the pain of rising national insurance contributions and changes to inheritance tax.
On a different date Mulholland said the sector has been battered by Labour’s policies, which he equated to ‘death by a thousand cuts’ and that ‘individually, each might have been absorbed. Together, they have pushed many family firms to the edge’.
Recent headlines have been damning. ‘Labour is wrecking the British economy’ (The Critic, 7 January 2026), ‘FROM THE OPPOSITION: Labour’s trail of broken promises’ (Wokingham Today 26 April 2026), and ‘Fourteen years of Conservative government broke Britain. Almost two years of this Labour government has only made things worse’ (London Evening Standard, 1 May 2026).
The local government elections at the start of May gave Labour a pasting. Granted, local elections rarely favour the government of the day, but this time, the drubbing was very distinct.
But back to the matter in hand, has Labour perceptibly crashed the economy?
Tax and spend
No business will ever last if it spends more than it has. Governments ought to operate on the same basis.
In its election manifesto for the July 2024 election, Labour outlined ‘Five Missions to Rebuild Britain’ with the first being to ‘kickstart economic growth’. However, government has gone on to spend more than it possesses and resultingly has increased taxation to pay for its spend thrift policies.
The Financial Times wrote in June 2024 that the then shadow chancellor Rachel Reeves was prioritising a ‘dash for growth’ to secure economic expansion over tax hikes, focusing on boosting UK output, attracting private investment, and reforming planning rather than ‘fiddling around with tax rates’.
Reeves promised there’d be no increase in national insurance, income tax, or VAT. But that painted government into a totally unnecessary box for, as she noted on taking office, there was an apparent £21.9bn black hole in state finances.
That reportedly gave Labour the grounds it needed to raise taxation just as it was spending £9.4bn on increasing public pay. Consequently, in Labour’s first budget – in October 2024 – taxes were increased by £42bn over the life of the current parliament.
The Guardian cited data from the Office for Budget Responsibility as showing £25.7bn of that sum would come via Employer National Insurance contributions, £2.5bn from Capital Gains Tax and £2.3bn from Inheritance tax.
It doesn’t help Labour is continuing the Conservative’s policy of squeezing citizen taxpayers – they’re not ‘customers’ as has been termed as there’s no choice but to pay what is demanded – by means of fiscal drag. In other words, by not increasing any tax thresholds, more are being brought into higher tax bands as inflation and pay rises bite.
The plan to charge electric vehicle (EV) drivers a per mile charge seems equally ill thought out and will catch out those driving overseas. Trade bodies representing EV drivers, renewable energy firms and charging operators has said the charge, due to take effect in April 2028, could backfire spectacularly. They’re saying the levy will suppress new vehicle sales to such a degree it ends up costing the exchequer considerably more than it raises.
We ought also to consider the impact of taxation on the rich. Like it or not, society needs the wealthy; they buy and maintain properties (and buy flooring), they conspicuously spend, the employ staff and use contractors with staff, invest and own businesses, and pay tax in the UK.
Labour has attacked non-doms – wealthy UK residents whose permanent home, or domicile – is outside the UK. Historically, such individuals paid UK tax only on money earned in the UK, while shielding any foreign income from UK tax. This regime was abolished in April 2025 and replaced by a new four-year foreign income and gains regime.
As a result of this and other changes to UK tax law there’s been an exodus of the wealthy to countries elsewhere.
Property prices are depressed given the economic situation the country is in, but in central London they’re markedly down because of a combination of changes to the non-dom rules, increased stamp duty, income tax and a proposed imposition of a ‘mansion tax’ on properties worth more than £2m. This will do little for construction related trades.
A recurring critique of Labour is that it has increased the tax burden on businesses and individuals without delivering any visible improvements in living standards. Higher taxes have not translated into clear service improvements, households still face cost-of-living pressures, and businesses see economic insecurity.
And to cap it all, a report by the restructuring firm Begbies Traynor Group found that the number of businesses in ‘critical financial distress’ had risen by 36% in the first three months of 2026, mainly because of the number of new levies they have to pay.
Employment
Recent tax-related changes has damaged the economy and employment.
Hiring is down, unemployment is up and the young are finding it very hard to get work – it’s one of the motivations for the recent (mid-March) swathe of policy measures designed to get the under 25s into work; by the end of 2025 16.1% of 16–24-year-olds were unemployed.
Similarly, data from jobs platform Adzuna, cited by the Sunday Times, noted that opportunities for graduates have dropped by more than a third over the past year. It’s partly down to AI, but high interest rates and a slowing economy haven’t helped either.
And it’s just as difficult for older workers. As the May 2026 Labour Force Survey found, some 917,000 people aged 50 to 66 have been unable to find a job, rising to 996,743 once those aged 66 to 70 are included. And bodies such as the Institute of Directors, 55/Redefined and the Centre for Aging better don’t think that the Employment Rights Act 2025 (ERA) is helping.
The BBC wrote mid-February ‘UK unemployment rate hits near five-year high as wage growth slows’. In more detail, Office for National Statistics data, seasonally adjusted, since Covid-19, shows an unemployment rate low of June to August 2022 of 3.6% and a pre-election rate of 4.2%. The rate rose to 5.2% between November 2025 and January 2026 but is currently December 2025 to February 2026 sitting at 4.9%.
The ERA was designed to give employees more rights. The reality is it’s likely to lead to fewer jobs being created as workers have gained unfair dismissal rights from six months, more flexible working rights, a day one right to Statutory Sick Pay, more parental leave rights, and will benefit from changes to union rules.
While there’s nothing inherently wrong in protecting employees against rogue employers, there needs to be some recognition that employers are under the cosh through higher national insurance contributions, increases to business rates and the threat of AI undermining their business propositions.
Making it more expensive to hire staff is only going to mean one thing – fewer job openings.
Beyond not hiring, firms have been losing workers. Consider the early May announcement from Whitbread that it would either close or sell the remaining 197 restaurants within its Premier Inn chain – mainly the branches of Beefeaters and Brewers Fayre – with the loss of almost 4,000 jobs – all because of ‘significant cost increases in the form of business rates and National Insurance’.
In general
Labour, like previous governments, has to deal with the media. However, its poor management of news has caused it so much pain. If we consider that spending is a function of confidence, it was calamitous for the Labour government to have flown so many kites about potential changes to taxation to gauge public reaction.
Last autumn – 2025 – there were so many ideas floating around with regard to changes to council tax that the housing market was stopped in its tracks. Similarly, concerns about the chancellor coming after the tax-free element of private pensions led individuals to (mistakenly) take money out of their pensions in haste only to find the policy hadn’t been announced leaving such extractions to be regretted at leisure. Labour had learned nothing as this was also a concern in 2024.
Similarly, changes to inheritance tax caused consternation. Not only will pensions become part of an estate from April 2027 but beneficiaries face a potential 62% charge on monies they inherit.
And then there’s the matter of inheritance-related taxation on family businesses passed from one generation to the next. This was best codified by farmers who most likely were the hardest hit by the policy since they are asset rich (land and machinery) but cash poor and operating on razor thin margins.
Elsewhere, the government is to change the ISA rules so that under 65-year-olds can only save £12,000 a year in cash; it thinks that individuals could make more by investing in the stock market. However, the reality is that individuals hold cash for a reason – lack of investment knowledge or the need for cash through age.
Similarly, the government is pushing pension reforms through that mandates funds invest in British assets such as infrastructure, private credit and private equity. But if pensions had been invested exclusively in the FTSE All-Share, UK gilts or HS2 savers would have missed out on growth in America’s S&P 500.
Collectively these changes, combined with an awful lot of U-turns, some 16 so far (including removing the winter fuel payment from pensioners), suggest a lack of joined up thinking.
SUBHEAD: For the sake of balance
Labour isn’t performing well. But to be fair, the UK economy has been weak after years of low growth and Brexit-related disruption. The short-lived Truss government held a destructive budget that caused economic turmoil and public services have been under strain – long before 2024.
However, it needs to be recognised that governments are elected to improve conditions, not explain them. And Labour has so far done little to inspire confidence.
And, of course, we shouldn’t forget the impact of Donald Trump’s war in the Middle East on governments around the world.
SUBHEAD: Third party comment
Trade bodies appear less than enamoured too.
The FSB’s Tina McKenzie, policy chair of FSB, is of the view that business sentiment is low, ‘driven by mounting costs stemming from policy decisions made by ministers. The outlook for small business growth is bleak.’
She added that ‘small businesses need a cushion to absorb the costs kicking in over the course of the year, because without changes to business rates, help with energy costs, an SSP rebate and a delay in dividend tax increases, it leaves them in a very vulnerable place.’
And the CBI is worried also. Alpesh Paleja, deputy chief economist, reckons ‘business’ expectations for activity have weakened further, as companies continue to grapple with uneven trading conditions, strong cost pressures and renewed uncertainty.’
He thinks the level of business sentiment ‘requires the government to work with business to find appropriate landing zones on the Employment Rights Act, delivering meaningful reform of a business rates system that is holding back investment, and further exploring how to take additional policy costs off business energy bills.’
In summary
Governments in a democracy live and fall according to their record. While all government see changes in their political fortunes over time, it does look like Labour will be lucky to last one term.
IMAGE COPYRIGHT: WIKIMEDIA
