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As taxes increase, should British SMEs raise prices?

The United Kingdom companies are preparing to raise prices in response to the tax increases announced in the last budget.

That was one of the main conclusions of a report by the British Chamber of Commerce (BCC) published earlier this month. According to the organization Quarterly economic survey63% of companies now consider taxes as a concern and, consequently, 55% expect to increase their prices in the coming months. In addition, the survey conducted to 4,800 companies – the vast majority small and medium – found that only one fifth planned to increase the investment. This may make sense in terms of accounting balance, but is it the right long -term solution?

There is no doubt that the decision to increase national insurance from 13.8% to 15.00% was a hard blow for many companies. In addition to increasing the general rate, the threshold in which employers pay the tax on the workers they employ was reduced from £ 9,100 to £ 5,000, which means that there will also be a position for many part -time employees.

What is done, is done. The question now is whether tax increases – taxes to raise money for public services – will inevitably lead to higher prices.

The fiscal problem

In December, I asked a representative sample of entrepreneurs about the challenges they would face for 2025. It must . .

For example, Sam Hussain is executive and co -founder director of the Startup Healthtech. Register my attentionA company that sells software for the social assistance sector. Companies that work in the care industry tend to require a lot of labor and, therefore, are likely to be affected disproportionately by the increase in national insurance. This, in turn, creates a challenge for those who sell them.

“The autumn budget has been a nightmare for us and for the industry to which we sell our software. Since social assistance costs largely fall on the staff, the impact of the increase in the national decent salary and the national insurance results in their costs to increase around 10%. Naturally, this exerts great pressure on margins already adjusted and leaves less budget for innovation, ”he said.

The company’s response is to focus on value. “We will be more focused than ever in ensuring that we can demonstrate a return of investment in our software,” he added.

Many companies, in particular the largest SMEs, will be directly affected by the growing cost of hiring personnel and, consequently, prices will increase. According to British cameras, only 40% of companies expect prices to remain the same, compared to 55% or plan to increase the cost of their goods and services in the next three months.

Get up or not upload prices

Increasing prices seems a logical step, but not all companies will feel capable or willing to follow that path.

Renée Elliott is a good example. Founder of the Organic planet Retail chain of organic food, recently resumed control of the company after buying it from the administration in 2023, saving ten stores and more than 250 jobs in the process. Looking ahead, it is determined to adhere to the company’s main mission to provide organic foods that benefit buyers and the planet.

As he explains, the news that taxes were going to rise after a especially intense year. “After taking out the company from the administration and when I entered the business, sales were 50% below the previous levels, we were analyzing profitability. The tax increase makes the benefits we were looking for. It costs us much more. ”

Consequently, Elliott says that she and her colleagues had to reconsider their plans to advance the company. His deliberations resulted in three conclusions. The company would not compromise the quality of its organic products. Nor would it reduce equipment size or increase prices in direct response to changes.

“Our intention is to keep our prices and manage them as we would do anyway. Our answer is to achieve an exit to this being a bit more intelligent, ”he says. “We also make the decision not to reduce our team. We were not going to respond to tax increases letting anyone go. ”

So how is it facing the increase in costs? Elliott recognizes that it is possible that the company has to respond to economic and fiscal circumstances at some point, but there are other ways to respond to financial pressures. “If in six months we are on your knees, then there are other things we can do,” he says. “We can analyze operational changes. We can consider changing our opening and closing schedules a bit. When you face financial difficulties, you have to be creative.

This is not simply altruism. As Elliott explains, maintaining pricing policies prior to the budget is in part of maintaining confidence with the consumer, but it is also important to keep Planet Organic at an affordable price. “If we reacted to the budget saying:” My God, we have to pay many more taxes and that is why we will increase our prices, “he wouldn’t seem honest.”

What seems more honest, he says, is to have a conversation about the value of organic foods and the benefits of consuming chemical -free products. “Buying organic food is an investment in oneself and your health.”

As for the team, Elliott says it would not be in line with the company’s values ​​to fire team members. Once again, there is a commercial logic in the sense that the committed members of the team play a very important role in educating and advising customers about their organic options.

Not all companies will be in a position to maintain prices compared to cost increase, but focusing on the value proposition potentially offers a means to prioritize long -term growth instead of short -term solutions.

Each company will have its own response to the challenges posed by the budget, but it is likely that emphasizing the value will become fundamental to keep the companies committed. Many companies will raise prices or fire personnel, but there are other options.