By Cassie Moyse
The policies introduced by Labour leader Sir Keir Starmer have sparked a growing divide between “working people” and business owners, threatening the stability of the UK’s small business sector.
For micro-businesses and SMEs, Starmer’s rhetoric and policy proposals are creating a fragile economic environment that risks alienating the very people who are the backbone of the UK economy. This rhetoric, combined with policies targeting business owners through increased taxes and wage hikes, could push many businesses to the brink of closure and stifle future growth.
Running a small business in the UK has never been easy, but recent economic pressures have only intensified the challenges. Small and micro-business owners face long hours, high risks, and the constant need to innovate while balancing operational costs. According to recent data, 20% of small businesses fail within their first two years, and around 50% close within the first five years. This high failure rate is reflective of the uphill battle small businesses face in maintaining cash flow, managing rising costs, and ensuring profitability.
Despite these challenges, SMEs remain critical to the UK economy. Approximately 99% of businesses in the UK are SMEs, employing millions of people and serving as the cornerstone of local economies. Small businesses support families, provide jobs, and foster economic vitality. However, policies that disproportionately target them—such as tax hikes and increasing the minimum wage—are exacerbating the pressures these entrepreneurs already face.
One of the most significant changes for business owners under Starmer’s leadership is the hike in National Insurance (NI) contributions. While the increase in NI is aimed at funding public services like the NHS, it places a substantial burden on small businesses, particularly those with large workforces. Small enterprises, which typically operate with tight margins, will bear the brunt of these increased payroll costs. As a result, they have fewer resources to reinvest in growth or to increase staffing levels.
Moreover, the increase in corporation tax, from 19% to 25% for larger companies, while primarily affecting higher-earning businesses, will also hit small, incorporated businesses. For these SMEs, the hike represents a serious threat. It reduces the funds available for reinvestment, expansion, and job creation. With rising operational costs—including rent, utilities, and wages—many small business owners are finding it harder to remain profitable, let alone expand or take on additional staff.
Recent surveys reflect how tax hikes are impacting business confidence. According to Investment Week, tax concerns have reached levels not seen since 2017. Business leaders are increasingly worried about the negative impact of rising tax burdens on their ability to grow and stay competitive. In fact, more than 70% of businesses expect price increases in response to rising taxes, which will impact everything from consumer spending to operational costs. As Investment Week notes, 77% of respondents feel that the latest budget will harm their ability to grow the economy, and 57% anticipate a negative impact on their own business prospects in the next year.
Keir Starmer’s commitment to raising the minimum wage has also been met with resistance from business owners, particularly in sectors like hospitality, retail, and fitness. While paying workers a fair wage is essential, for small businesses operating on razor-thin margins, an increase in the minimum wage can lead to significant financial strain.
In industries like hospitality, which often operate on low margins, an increase in the minimum wage will likely result in higher prices for consumers. While this helps businesses meet the new wage demands, it can also alienate customers, reducing demand and further hurting the bottom line. For other small businesses in the retail and fitness sectors, where competition from multinational corporations is fierce, the additional financial strain may make it impossible to stay afloat.
Another issue that could have severe long-term consequences is the growing exodus of high earners and successful entrepreneurs from the UK. In 2022 alone, over 3,200 millionaires left the country, citing high taxes and political instability as key reasons for their departure. This trend is expected to continue as the UK’s tax regime becomes increasingly punitive for those who can afford to leave.
This outflow of wealth not only deprives the UK of vital tax revenue but it also stifles the innovation and investment that come with the presence of high earners and entrepreneurs. As these individuals seek more favourable tax environments abroad, they take with them crucial capital and expertise that could otherwise contribute to the UK’s economy. While Starmer’s proposals are designed to tax the wealthy, they risk driving the very people who could stimulate growth and create jobs out of the country.
It’s an issue that many small business owners are acutely aware of. For those who have worked hard to build their businesses from the ground up, the idea of losing investors, talent, and entrepreneurs to other, more business-friendly countries is a troubling prospect. The potential loss of this valuable intellectual capital could result in the UK’s economy stagnating while other global markets continue to thrive.
At the heart of Starmer’s strategy is a rhetorical divide between “working people” and business owners. His focus on supporting working-class individuals has undoubtedly resonated with many, but it risks alienating small business owners, entrepreneurs, and high earners—who make up the majority of the UK’s job creators and innovators.
Starmer’s approach positions business owners as the villains, painting them as obstacles to economic progress. However, the reality is that the policies he champions disproportionately affect the very people who create jobs and invest in local economies. If small businesses continue to face escalating tax burdens and rising wage costs, many will struggle to survive, leading to higher unemployment and a shrinking economy.
This approach could also backfire politically. As recent surveys suggest, business confidence in the UK has dropped by 23% since the last quarter, with only 66% of business owners expressing confidence in their prospects. A staggering 39% now foresee no growth or a decline in turnover—an alarming increase from just 16% previously. The economic outlook is deteriorating, and the policies aimed at “helping” working people may, in reality, undermine the very businesses that provide the foundation for the economy.
For millions of small business owners across the UK, Starmer’s policies represent an existential threat. The rising tax burdens, combined with higher National Insurance contributions and a minimum wage increase, are pushing many businesses to the edge. The Investment Week survey highlights that these tax increases could further reduce the chances of business expansion, with many owners now scaling back employment plans. Alarmingly, 14% of entrepreneurs plan to reduce staff over the next year—up from just 6% last quarter.
For SMEs already struggling with cash flow, the increasing operational costs—along with the tightening tax environment—may prove to be the final blow. Small businesses may no longer be able to remain viable in a market where their financial burdens are rising and demand is shrinking.
Small businesses are the lifeblood of the UK’s economy. They create jobs, stimulate growth, and invest in their communities. However, the policies proposed by Keir Starmer and his Labour Party threaten to dismantle this crucial sector. By increasing taxes and wages without providing sufficient support or flexibility for small businesses, the Labour leader risks pushing entrepreneurs out of business and driving innovation away.
As the recent Investment Week survey indicates, business confidence is faltering, and the outlook for many small businesses is increasingly bleak. With rising taxes and operating costs, combined with a hostile tax environment for high earners, the UK faces the potential for long-term economic stagnation. If the policies continue in this direction, the result will be fewer businesses, less innovation, and a shrinking economy.
Keir Starmer’s policies, particularly higher taxes and increased wage costs, are seen by many business owners as punitive. His focus on raising National Insurance and corporation tax, along with pledges to increase the minimum wage, targets businesses already struggling with rising costs. While these measures are aimed at improving public services and supporting workers, many entrepreneurs feel they disproportionately burden small businesses. This could stifle growth, reduce investment, and lead to closures. Starmer’s rhetoric, positioning himself as the champion of “working people,” risks alienating the very small business owners who create jobs and support local economies.
To survive in today’s challenging economy, business owners must be prepared to do nothing less than fight for survival. Adapting to market shifts and staying agile is crucial. Business owners must focus on managing cash flow, reducing unnecessary costs, and exploring new revenue streams. Many are embracing technology to improve efficiency and customer engagement. Strengthening customer relationships through exceptional service and loyalty programmes while collaborating with other businesses to share resources and expand reach is essential.
Prioritising long-term planning while navigating immediate challenges, and leveraging available financial support such as grants or loans, is more important than ever. By being flexible, innovative, and proactive, businesses can navigate tough times and emerge stronger. But without a supportive economic environment, the challenges of surviving in today’s economy may be insurmountable for many.
Ultimately, the future of the UK’s small businesses hinges on creating policies that balance the need for public investment and support for workers with an environment that encourages entrepreneurship and innovation. Without such a balance, the risk of stifling growth and seeing small businesses disappear becomes ever more real. For the sake of the UK economy, it is crucial that policymakers recognise the vital role small businesses play and avoid policies that burden them beyond their capacity to survive.
