The CBI’s Room to Grow report – produced in partnership with Mars and supported by 15 foundational sector deep dives developed with CBI Trade Association members – sets out why government must tackle the cost of doing business, working in partnership with companies, to ease nationwide cost of living pressures.
Policy decisions may be developed in different departments and on varied timetables, but their costs converge on the same business balance sheet. Firms must manage rising costs, NICs, internationally uncompetitive industrial electricity prices, regulatory friction and an increasingly complex tax system together. In 2025/26, businesses paid almost £345 billion in taxes – accounting for 31.3% of all UK tax receipts and representing a 12.7% increase on the previous year – alongside these wider operating pressures.
Why does this matter? New CBI analysis shows that, in today’s competitive market, companies are actively absorbing inflationary pressures and prioritising cost efficiencies to shield customers and make products as accessible as possible. Decades of CBI Industrial Trends and Services Sector Surveys show businesses are absorbing costs through lower margins, reduced investment and slower hiring, with profitability falling to its lowest level since the 2008 financial crisis.
While this may protect consumers from some price increases in the short term, it leaves firms with less capacity to invest in the technology, skills and infrastructure that raise productivity, create good jobs and support sustained increases in real wages needed to ease cost of living pressures.
Room to Grow brings together a significant programme of CBI policy development and evidence-building progressed over the past year. It complements Cutting business energy costs: a blueprint for growth, produced jointly with Energy UK; Pipeline to Progress: making UK infrastructure investable, produced in partnership with Browne Jacobson; and the CBI’s youth unemployment report - Opportunity in every postcode, wherever they live.
Together, this body of work demonstrates how labour and energy costs, the escalating cost of compliance, and rising complexity in the tax system are constraining growth – and sets out practical recommendations to restore the financial headroom businesses need to invest, hire and raise living standards.
Get the detail with the full report
Key findings
Cumulative cost pressures are constraining investment. The evidence shows that the challenge lies not only in individual costs, but in how they combine and shape business decisions at all levels. Five findings stand out:
Labour and energy costs are squeezing business headroom
Businesses paid £123.1 billion in Employer NICs in 2025/26 – a 28% annual increase – while 73% of firms now identify labour costs as the greatest threat to labour market competitiveness. At the same time, UK non-domestic electricity prices were around 45% above the G7 median across 2023 and 2024, with four in ten businesses reporting that higher energy costs had caused them to delay or cancel investment. One engineering business said the Employer NICs rise added more than £5 million to its cost base, contributing to a near-freeze in recruitment, while retailers face a 16% increase in electricity costs during 2026 despite broadly unchanged consumption.
Working locally: devolution must be matched by delivery capacity
Devolution can bring decisions closer to local economic priorities, but without sufficient planning, commercial and technical capacity it risks transferring bottlenecks rather than removing them. Around 85% of English local planning authorities had vacancies during 2025, while 76% of SME housebuilders identified planning delays as a major supply-side constraint. In Scotland, homebuilders report that stretched planning authorities routinely miss statutory timescales, with committee referrals and difficulties securing road bonds adding cost and delay. One South West quarry has spent more than £2.8 million navigating planning requirements, delaying production and local jobs by at least two years. Mayoral Strategic Authorities also need the expertise to develop credible, investable propositions capable of attracting private capital.
Working nationally: regulation must work as a coherent system
Businesses increasingly identify regulatory delivery, rather than regulatory ambition, as the principal challenge. Firms spent an average of eight staff days per month dealing with regulation in 2024, while 61% identified repeatedly providing the same information as a significant source of unnecessary cost. Food and drink manufacturers and retailers must navigate Extended Producer Responsibility alongside the Packaging Recovery Note system and Plastic Packaging Tax. Wales’ proposed inclusion of glass in its Deposit Return Scheme could add further complexity for firms operating across the UK, while creating opportunities for cross-border arbitrage and fraud. Such fragmentation also weakens investment certainty: one engineering business redirected £12–18 million of planned renewable and hydrogen investment from the UK to the Middle East.
Working internationally: reducing unnecessary UK–EU regulatory friction
Businesses trading across the UK and EU increasingly bear the fixed cost of navigating two regulatory systems. In 2024, 60% of businesses surveyed said the administrative burden associated with importing or exporting had increased considerably since EU exit, with a further 22% reporting an increase that had become business as usual. One Northern Irish agri-food business reported that regulatory frictions had increased the time needed to source cereal seed from Great Britain from five or six days to five or six weeks, leading established supply chains to be rerouted through the Republic of Ireland.
The rising complexity in the tax system
The challenge businesses face is not only how much tax they pay, but how the system is designed and administered. Nearly one-third of firms said business rates had played a major role in cancelling, reducing or delaying property investment. Sector-specific taxes add further complexity: repeated changes to the Energy Profits Levy have increased uncertainty for long-term offshore energies investment, while locally designed Overnight Visitor Levies risk creating a patchwork of rates, exemptions and processes. Initial compliance costs for a typical small-to-medium-sized Scottish hotel are estimated at £3,000 – £10,000. Across the wider system, HMRC estimates that businesses spend £15.4 billion each year complying with around 2,500 tax obligations.
Tackling the cost of doing business: headline recommendations
The report sets out a wider programme of supply-side reform than is summarised here. Among its main recommendations are:
Remove legacy policy costs from business electricity bills
Remove Renewables Obligation and Feed-in Tariff costs from business electricity bills. This would help narrow the gap between UK business electricity prices and those faced by international competitors, while strengthening the case for businesses to invest in electrification.
Reduce the cost of employing people
Explore options to reduce Employer NICs. These include raising the Employer NICs threshold by £1,000 to £6,000 to support lower-paid and entry-level employment, or reducing the headline rate from 15% to 14% to provide broader relief across the economy.
Continue investing in planning capacity
Expand resources within Local Planning Authorities, focusing particularly on experienced planners capable of managing complex applications. Stronger planning capacity would accelerate decision-making, reduce costly delays and improve investor confidence.
Test the cumulative cost before adding new regulation
Strengthen cumulative impact assessments before major regulations are introduced and use the Food Inflation Gateway as a model for this approach. Drawing on business evidence would help government identify where overlapping measures raise consumer costs or reduce investment headroom, allowing their implementation to be better coordinated or rephased.
Deliver the UK–EU Sanitary and Phytosanitary Agreement effectively
Implement the SPS Agreement in a way that materially streamlines export health certification and border processes, including removing unnecessary ‘Not for EU’ labelling. This would reduce friction between Great Britain, Northern Ireland and the EU, while limiting the need for businesses to maintain separate packaging and stock.
Link the UK and EU carbon-pricing systems
Link the UK and EU Emissions Trading Schemes and pursue mutual Carbon Border Adjustment Mechanism exemptions where appropriate. This would reduce trade friction and compliance costs for energy-intensive industries, while providing greater certainty for investment in decarbonisation.
Introduce a more progressive business-rates system
Replace the current slab-based system with a banded or slice-based structure. Smoother increases in liabilities would remove cliff edges that discourage firms from improving their premises, expanding or moving into more productive properties.
Simplify sector-specific taxation
Replace the Energy Profits Levy with HM Treasury’s proposed Oil and Gas Revenue Levy from April 2027, so additional taxation applies only when oil and gas prices are unusually high. Avoid introducing locally administered Overnight Visitor Levies, which risk creating a patchwork of charging structures and additional administrative costs.
Maintain stability within the core business-tax framework
Maintain existing commitments on Corporation Tax, Full Expensing, R&D tax relief and the Patent Box. A stable and predictable framework would reinforce business confidence and provide firms with the certainty needed to make long-term investment decisions.
Business cost analysis across 15 foundational sectors
The Modern Industrial Strategy’s eight growth sectors cannot succeed in isolation. They depend on foundational sectors to build and power their facilities, provide essential materials, connect supply chains and support employment in communities across the country.
Developed in partnership with CBI Trade Association members, the 15 foundational sector deep dives published alongside the main report examine each sector’s economic and business-tax contribution, the cumulative labour, energy, regulatory and tax pressures it faces, and the consequences for investment, hiring and competitiveness. They also draw on lived business examples and identify practical sector-specific priorities. The recommendations within each deep dive have been put forward by the relevant Trade Association partners and reflect their own views and priorities.
Deep dive: agri-food business costs
Developed with the National Farmers’ Union, the agri-food deep dive shows how agriculture underpins food security, consumer affordability and a wider agri-food economy worth £153.2 billion. Agricultural businesses also sustain rural communities and purchase £20.9 billion of inputs annually from sectors including manufacturing, energy, chemicals and logistics.
Labour costs have risen by more than 40% since 2019, while electricity and heating-fuel costs have increased by around 55% and 57% respectively. Higher fertiliser costs, import dependency and borrowing pressures are also constraining investment, with 55% of farmers identifying interest rates as a barrier to accessing finance. The deep dive prioritises planning reform, better labour availability, reduced regulatory duplication and closer alignment between domestic food and trade policy.
Deep dive: automotive business costs
Developed with the Society of Motor Manufacturers and Traders, the automotive deep dive highlights a strategic manufacturing sector contributing £14.4 billion in GVA and employing 142,800 people. Its advanced engineering, design and R&D capabilities support extensive supply chains across metals, chemicals, electronics, software and logistics, while positioning the UK to benefit from the transition to zero-emission mobility.
The sector is managing that transition while facing electricity and gas prices that have more than doubled since 2019, rising salary costs and an additional Employer NICs cost of around £1,000 per worker. Manufacturers have also spent £12 billion discounting zero-emission vehicles since the ZEV mandate began, yet demand continues to fall short of regulatory targets. These pressures are weakening competitiveness and have coincided with a 14.7% fall in automotive manufacturing employment since 2019.
Deep dive: aviation business costs
Developed with Airlines UK and Airports UK, the aviation deep dive shows how airports and airlines enable trade, tourism, inward investment and high-value service exports. The sector generates around £53 billion in GVA and supports 671,000 jobs, while air freight connects UK businesses with international markets and moves time-sensitive, high-value goods.
Jet-fuel prices have risen from around $75 per barrel in 2019 to more than $141 in 2026, while aviation labour costs have increased by 25–35%. Airports UK estimates that valuation changes could increase airports’ annual business-rates burden from £225 million in 2023–26 to almost £1 billion in 2026–29. These pressures sit alongside aviation taxes and the costs of meeting a UK Sustainable Aviation Fuel mandate that is more ambitious than the EU equivalent.
Deep dive: beer, pubs and breweries sector business costs
Developed with the British Beer and Pub Association, the deep dive highlights a sector supporting almost one million jobs and providing important social infrastructure in communities across the UK. Pubs alone employ 619,000 people, with 52% of their workforce aged 16–24, making the sector a particularly important source of first jobs, flexible employment and early career development.
Wages and salaries increased from 23% of pub turnover in 2019 to 27% in 2025, while utilities rose from 4% to 5.4%. Packaging regulation is adding further pressure: Extended Producer Responsibility glass fees cost brewers £124 million annually, while double charging for packaging that remains in commercial waste streams could add £50 million. One publican reported losing 20 staffing hours per week simply to absorb recent employer-cost increases.
Deep dive: chemicals sector business costs
Developed with the Chemical Industries Association, the chemicals deep dive demonstrates the sector’s importance as a supplier to pharmaceuticals, construction, automotives, agriculture and critical infrastructure. The industry generated £38.1 billion in GVA in 2025 and approximately £244,000 of output per job – more than twice the UK average – making it one of the UK’s most productive industries.
Industrial electricity prices have increased by 88–109% across consumption bands since 2019, while gas prices have risen by 83–151% and chemical input costs remain around 30% higher. These pressures have contributed to the closure of approximately 25 UK chemical sites since 2021; nearly half of firms expect employment to fall and one-quarter plan to reduce investment. Duplicative UK REACH registrations could impose a further estimated cost of £2 billion.
Deep dive: construction business costs
Developed with Build UK, the construction deep dive shows how the sector enables every part of the economy by delivering homes, schools, hospitals, transport, energy infrastructure and commercial assets. Construction generates around £158.7 billion in GVA and supports 2.27 million jobs directly, rising to approximately 3.1 million across the wider supply chain.
Skills shortages, higher Employer NICs, elevated material prices and financing costs are making projects more expensive and less viable. Prices for materials including steel, timber, concrete and aggregates rose by more than 20–30% at their peak and remain above pre-pandemic levels. Planning delays and Building Safety Gateway Two – which can add up to a year to some projects – compound these pressures, weakening confidence in the sector’s ability to invest against a public infrastructure pipeline worth more than £700 billion.
Deep dive: energy sector business costs
Developed with Energy UK, the energy deep dive highlights a sector that underpins every household, business and public service. It contributes around £50.1 billion in GVA, supports 143,300 direct jobs and sustains a supply chain estimated to generate four times the sector’s own GVA. Delivering Clean Power 2030 alone is expected to require £200–250 billion of investment.
Wholesale electricity prices remain around 1.5–2 times their 2019 level and gas prices around 2–4 times higher, while the cost of debt for regulated assets has risen from approximately 2% to 5%. Projects that were previously viable are consequently being delayed, scaled back or cancelled. Regulatory complexity adds further cost: the industry must navigate more than 10,000 pages of energy codes, while delayed network investment added at least £2 billion during the energy crisis.
Deep dive: food and drink manufacturing business costs
Developed with the Food and Drink Federation, the deep dive covers the UK’s largest manufacturing sector, contributing £41.6 billion in GVA and supporting 484,800 jobs. Manufacturers purchase around 40% of UK farming output and sit at the centre of a £171 billion supply chain spanning agriculture, packaging, logistics, retail and hospitality, making the sector central to food security and economic resilience.
Input costs excluding labour have risen by 40.3% since 2020, while Extended Producer Responsibility, the Plastic Packaging Tax and Employer NICs changes impose more than £1.5 billion in annual policy costs. Businesses have responded by changing procurement strategies and improving energy efficiency, but 39% have paused or cancelled capital investment. Planning delays, overlapping packaging schemes and poorly sequenced implementation of the UK–EU SPS Agreement risk diverting further investment and innovation away from the UK.
Deep dive: hospitality business costs
Developed with UKHospitality, the deep dive highlights the sector’s role as one of the UK’s largest employers and a cornerstone of local economies, high streets and communities. The sector directly provides over 2.6 million jobs, with 41% of employees aged 16–24 – making hospitality a particularly important source of first jobs and opportunities for young people. The sector generated £93 billion in economic activity in 2022, with every £1 of GVA generated directly by pubs supporting a further £1.30 elsewhere in the economy.
Hospitality businesses face acute pressures from rising employment, energy and property costs. Median hourly wages have risen by around 40% since 2019, while the sector contributed £4.9 billion in employer NICs in 2025/26 – a 25% increase on the previous year. Utilities bills are nearly 250% higher than in 2016, while hospitality pays 2.5% of turnover in business rates, compared with an average of 0.6% across sectors. Regulatory costs are adding further pressure, with the current EPR framework alone estimated to create around £50 million a year in additional costs for pubs through the double counting of packaging that remains within commercial waste streams.
Deep dive: logistics sector business costs
Developed with Logistics UK and the Road Haulage Association, the logistics deep dive shows how the sector connects production with markets and keeps supply chains moving across manufacturing, retail, food, construction and infrastructure. It contributes £175 billion in GVA and employs 2.6 million people, while also enabling emerging industries including offshore wind, hydrogen, nuclear and digital infrastructure.
Labour costs associated with operating a 44-tonne HGV have increased by 58% since 2019, while Employer NICs changes can absorb more than half of average road-haulage margins, which stand at only 1.6%. A five-pence increase in fuel duty would add £2,054 to the annual cost of operating a typical HGV and an estimated £2 billion to household living costs. Outdated licensing rules, border friction and uncertainty over zero-emission vehicles create additional barriers to investment.
Deep dive: mineral products sector business costs
Developed with the Mineral Products Association, the deep dive demonstrates how aggregates, concrete, asphalt, cement, lime and industrial minerals provide the physical foundations for housing, infrastructure and manufacturing. The sector contributes £6.3 billion in GVA and supports 88,600 jobs, with approximately 95% of its output used in construction.
The sector has experienced four consecutive years of declining demand while managing significant energy and tax pressures. Electricity prices for extra-large manufacturing consumers have increased by 81% since 2019 and gas prices for large users by 98%; energy now represents 37% of cement operating costs and 54% for lime. Employer NICs changes added an estimated £87.7 million in 2025/26 before allowances, while business-rates liabilities in England and Wales are expected to be 58% higher in 2026/27 than in 2021/22.
Deep dive: offshore energies sector business costs
Developed with Offshore Energies UK, the deep dive covers an industry contributing more than £36 billion annually and supporting over 240,000 skilled jobs across oil and gas, offshore wind, carbon storage and hydrogen. Its £123 billion investment pipeline represents a major opportunity to strengthen energy security, support industrial decarbonisation and retain North Sea capabilities needed for the energy transition.
Almost two-thirds of offshore supply-chain companies expect operating costs to rise, while European offshore-wind turbine prices have increased by more than 40% since 2020. The Energy Profits Levy’s 78% headline tax rate has weakened oil and gas investment, while offshore-wind projects can take 8–13 years to reach a final investment decision. Direct regulatory costs in oil and gas increased by 65% between 2015 and 2025 as production fell by more than 40%, underlining the need for faster and more coordinated decisions.
Deep dive: retail business costs
Developed with the British Retail Consortium, the retail deep dive highlights a sector contributing £117.2 billion in GVA and directly employing 2.81 million people, while supporting a further 2.7 million jobs through its supply chain. Retail provides a route to market for UK producers and sustains high streets, town centres and local employment in every nation and region.
Cost pressures are concentrated across labour, energy, property and regulation. Labour and employment costs rank among the leading risks for 84% of retail CFOs; 52% plan to reduce staff hours or overtime and 32% expect to freeze recruitment. Non-commodity charges now account for 57–65% of electricity bills, while Extended Producer Responsibility adds approximately £1.6 billion in costs.
Deep dive: shipping sector business costs
Developed with the UK Chamber of Shipping, the shipping deep dive highlights an industry that transports around 95% of UK trade by volume. It contributes an estimated £21.3 billion directly to GVA and supports £46.2 billion and 728,200 jobs across the wider economy, while connecting domestic and global supply chains and underpinning the UK’s energy and communications security.
Energy represents 30–60% of ship operators’ expenditure, while geopolitical disruption is extending voyage times and increasing fuel costs. Decarbonising global shipping could require investment of $1.2–1.6 trillion in vessels, retrofits and fuel infrastructure, yet access to alternative fuels and shore power remains limited. More expensive ship finance, growing seafarer shortages and overlapping border, immigration and carbon-pricing requirements add further cost and risk to an industry competing internationally for vessels, investment and trade flows.
Deep dive: steel business costs
Developed with UK Steel, the steel deep dive shows how the sector supplies critical inputs for construction, automotives, energy infrastructure and advanced manufacturing. It contributes £4.7 billion in GVA, supports 62,500 jobs and includes around 1,820 businesses. Domestic steel capability will be central to delivering new housing, nuclear power, renewable energy, electric vehicles and critical infrastructure.
Even after available support, UK steelmakers face electricity prices around £12/MWh (25%) higher than competitors in France. Because steel is priced globally, these costs are largely absorbed through margins rather than passed on, contributing to UK crude-steel output falling to approximately 2.5 million tonnes in 2025, its lowest level on record. Rising UK ETS costs, reduced free allocations and overlapping carbon-reporting requirements add further pressure while uncertainty around UK and EU CBAM arrangements increases the risk of carbon leakage.
Shape the next phase of this work
The CBI will continue to draw on members’ insights to help government understand how rising business costs feed through into the prices of the goods and services households rely on. We want to hear how firms are managing these pressures, the consequences for investment and employment, and where government action could make the greatest difference.
Businesses interested in contributing can contact Charlie Courtney, CBI Economic Policy Manager, at [email protected].
