The Growing Cost of Doing Business in the UK
19-10-2026
If the UK wants stronger communities, more skilled jobs and a more resilient economy, it must ensure that the businesses producing goods, training workers and sustaining local supply chains can afford to operate here.
At present, this is where the UK seriously trips up. The country cannot rebuild its manufacturing base while simultaneously daily running costs are making it increasingly difficult for businesses to survive.
That is the question the government, in particular, needs to confront. Across the UK, small and medium-sized enterprises (SMEs) face a combination of employment costs, energy bills, premises costs, taxation, regulatory obligations and uncertain demand. Each cost has its own explanation. Together, however, they can leave businesses with little room to invest, expand, employ or withstand financial fluctuations.
For the UK fashion, textile and clothing manufacturing sector, the consequences are particularly significant. These are businesses that turn ideas, materials and skilled labour into tangible products. They support designers, machinists, pattern cutters, technicians, fabric suppliers, manufacturers, logistics providers and retailers. Their contribution is not confined to the value of the products they sell; it also includes the jobs, expertise and economic activity they sustain in communities across the country.
Yet what incentive does a business have to invest in British production if the cost of doing so makes it difficult to compete with goods manufactured overseas?
This is not an argument against fair wages, responsible employment or environmental standards. Nor is it a suggestion that imports should be abandoned. It is an argument that government must take a more joined-up approach to the cost of doing business, so that employing people and manufacturing in Britain remain economically viable choices.
The rising cost of employing people
From April 2026, the UK’s National Living Wage for workers aged 21 and over is £12.71 an hour. This provides an important wage floor for workers, but it also forms part of the calculation that employers must make when deciding whether they can afford to recruit, retain and train staff.
The headline hourly rate is only one part of the picture. Employers must also account for National Insurance, workplace pension contributions, holiday pay, training and other employment-related expenses.
Employer National Insurance illustrates how quickly the total cost can change. The main employer contribution rate increased from 13.8% to 15% in April 2025, while the secondary threshold fell to £5,000 a year. The employment allowance provides some relief for eligible employers, but the impact varies according to a business’s payroll and eligibility.
For a labour-intensive manufacturer, these costs are especially important. Producing garments in Britain requires skilled people at multiple stages, from pattern development and cutting through to sewing, finishing and quality control. Unlike a business that can automate most of its operations, a small clothing manufacturer may have limited scope to reduce the number of hours required to produce each item without changing its entire production model.
The policy question is not whether workers should be paid fairly. They should. It is whether the tax and employment system can support fair wages while allowing employers to create more jobs.
A business that cannot afford to recruit may leave a vacancy unfilled. One that cannot fund training may struggle to develop the next generation of skilled workers. One that reduces its workforce may lose capacity that is difficult and expensive to rebuild.
Government should therefore examine the combined cost of employment for SMEs, particularly those seeking to create entry-level jobs, apprenticeships and skilled manufacturing roles. A more targeted approach to employer contributions, alongside practical support for training, could help businesses grow their workforces without undermining workers’ pay.
Energy costs and the competitiveness gap
Energy is another major concern for British industry. The House of Commons Business and Trade Committee warned in June 2025 that high industrial energy prices were undermining UK competitiveness and could hold back investment. The government’s subsequent Modern Industrial Strategy acknowledged the problem and announced plans to reduce electricity costs for eligible energy-intensive businesses through the British Industrial Competitiveness Scheme.
That recognition matters. But it also raises a question: how many smaller manufacturers will benefit from support, and how many will remain outside the eligibility criteria?
Textile and clothing manufacturing does not always resemble heavy industry. A small factory may not consume the same volume of electricity as a steelworks, yet its machinery, lighting, heating, ventilation and finishing equipment still require power. Businesses may also face commercial standing charges and contract terms that are difficult to negotiate individually.
For a small manufacturer operating on tight margins, energy is not an optional expense. It is part of the cost of every product made.
Support for energy-intensive industries is welcome, but the government should ensure that its approach also recognises the needs of smaller manufacturers and the supply chains on which larger industries depend. Affordable electricity, faster grid connections, practical support for energy efficiency and access to finance for equipment upgrades should form part of a broader manufacturing policy.
The objective should be straightforward: British businesses must have a realistic opportunity to invest in productive equipment, improve efficiency and compete for orders without being placed at a structural disadvantage by their operating costs.
The government’s 2025 survey of SME employers found that:
67% – Cited taxation and business taxes as an obstacle to growth
Including VAT, PAYE, National Insurance and business rates.
52% – Cited energy prices as an obstacle to growth
38% – Cited the National Living Wage as a major obstacle
For manufacturing specifically, the survey found that taxation was cited as an obstacle by 76% of SME employers and energy prices by 74%.
European & UK Minimum Wage / Monthly Income Compared:
1. High Tier (> €2,100 / month)
- Luxembourg: €2,771 per month (Highest in Europe)
- Ireland: €2,391 per month
- United Kingdom: €2,341 to €2,464 per month (Estimated conversion)
- Germany: €2,343 per month (~€13.90 / hr)
- Netherlands: €2,295 per month
- Belgium: €2,112–€2,234 per month
2. Mid-Range Tier (€1,000 – €1,900 / month)
- France: €1,823–€1,867 per month
- Spain: €1,381 per month (adjusted for 14 payments)
- Slovenia, Poland, Portugal, Greece, Croatia: €1,000–€1,482 per month
3. Lower Tier (Below €1,000 / month)
- Czechia: €924 per month
- Hungary: €838 per month
- Romania: €795 per month
- Latvia: €780 per month
- Bulgaria: €620 per month
Sources:
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Minimum_wage_statistics
https://www.gov.uk/government/publications/minimum-wage-rates-for-2026
The European comparison: what does Britain want to compete on?
Comparisons with European economies show why a wider view of business costs is necessary. Minimum wages, employer social contributions, energy prices, tax arrangements and working patterns vary between countries. A direct comparison of hourly wage rates alone cannot establish which country is the cheapest place to manufacture. What matters is the total cost of producing a product, including labour, energy, premises, transport, financing, productivity and the applicable tax system.
Nevertheless, the comparison deserves serious attention. If British manufacturers face higher costs in certain areas, government should understand where those differences arise and whether they are justified by corresponding benefits in infrastructure, productivity, skills or public services.
The answer cannot simply be to suppress wages or weaken employment protections. That would risk transferring the cost of competitiveness to workers and their families.
Instead, Britain should compete through productivity, skills, design, innovation, reliable infrastructure and a business environment that encourages domestic investment. Where policy adds avoidable costs or creates unnecessary uncertainty, those barriers should be reviewed.
The purpose of an international comparison is not to assume that another country has the perfect model. It is to identify what works, where the UK is at a disadvantage and what can be improved without sacrificing the standards that matter to British society.
The hidden cost of losing domestic manufacturing
When a UK manufacturer closes, the immediate loss is visible in the business itself. The wider consequences can be less obvious. A factory closure may mean lost employment, fewer apprenticeship opportunities, reduced demand for local suppliers and the dispersal of specialist skills. Designers may find it harder to source nearby production. Emerging brands may have fewer opportunities to test small production runs. Businesses that once supplied one another may become more dependent on overseas networks.
This matters in fashion and textiles because manufacturing capability is a wide network. It depends on relationships between material suppliers, technical specialists, factories, brands, educators and customers. Once those relationships disappear, rebuilding them can take years.
Domestic manufacturing can also provide shorter supply chains and greater proximity between production and the businesses selling the finished goods. Depending on the product and production method, this can improve responsiveness, traceability and quality control. It does not automatically guarantee a lower environmental impact, but it gives businesses and customers different opportunities to manage and understand their supply chains.
The wider economic question is whether Britain wants to retain the capacity to make a greater proportion of the products it designs, develops, buys and uses. Imports will remain an essential part of the economy. International trade gives businesses access to materials, markets and products that cannot all be supplied domestically. But reliance on overseas production becomes a vulnerability when domestic capacity is lost and alternative supply is disrupted. A resilient economy needs both international trade and a viable domestic industrial base.
From cheap imports to long-term economic value
When a product is manufactured overseas, the UK consumer or business may benefit from a competitive price. But much of the manufacturing activity, associated employment and supplier spending takes place elsewhere. When production is undertaken in Britain, a greater share of that activity can support domestic workers, suppliers and local businesses.
This does not mean that every imported product should be replaced by a British-made equivalent, or that domestic production is always commercially or environmentally preferable. Cost, quality, capability and customer demand must remain part of the decision. It does mean that government should recognise the economic value of maintaining productive capacity in the UK.
Public procurement is one possible route. Where public bodies purchase clothing, uniforms, textiles and other manufactured goods, procurement rules could give appropriate weight to resilience, quality, durability, environmental performance, labour standards and whole-life value, while complying with applicable procurement law and international trade commitments.
Longer-term contracts, clearer demand forecasts and accessible tendering processes could also help domestic manufacturers invest with greater confidence. Smaller businesses need a realistic opportunity to compete, not simply an invitation to participate in a process designed around the capacity of the largest suppliers.
Government should also consider how its own purchasing power can help develop skills, encourage innovation and support regional manufacturing clusters.
The case for a healthier business economy
A healthy economy is not measured solely by the number of businesses registered or the value of goods sold. It also depends on whether enterprises can remain viable, whether people can find productive work, whether skills are passed to the next generation and whether communities retain a diverse economic base.
SMEs are central to that picture. They provide employment, supply larger businesses, serve local markets and often create routes into work for people who might otherwise struggle to access skilled occupations. Their ability to invest and grow is therefore an economic issue as well as a business issue.
None of this removes the need for businesses to operate efficiently, innovate and respond to customers. Nor should government guarantee the survival of every enterprise regardless of its viability. But there is a legitimate distinction between a business failing because its products no longer meet market demand and a viable business being prevented from investing or employing people because the combined costs and complexity of operating have become disproportionate.
Government should be willing to investigate that distinction and act where the evidence supports reform. The test of a successful policy is not how many announcements it produces. It is whether businesses can turn those commitments into investment, employment, production and sustained economic activity.
Britain must decide what it wants to make possible
The question facing policymakers is bigger than a single tax, energy bill or minimum wage increase. It is whether the UK’s overall economic framework encourages businesses to create jobs, develop skills, manufacture products and invest for the long term.
If Britain wants to strengthen its domestic supply chains, reduce avoidable dependence on overseas production, create skilled employment and support thriving communities, it must make those ambitions commercially realistic.
That requires honest comparisons with competing economies, serious engagement with SMEs and a willingness to review policies whose combined effects may be working against domestic investment.
For fashion and textiles, the stakes are tangible: the future of factories, technical skills, British production and the businesses that connect creativity with manufacturing. For the wider economy, the principle is the same. Businesses that employ people and produce goods in the UK need a framework that enables them to compete, adapt and grow.
Sources:
Top image by Mathais Reding via pexels.com
