It’s close on two years since Labour won the 2024 general election, and since then, the government has changed the economics of business.
Consider the headlines.
“Labour is wrecking the British economy” (The Critic, 7 January 2026). “Labour’s trail of broken promises” (Wokingham.Today, 26 April 2026), “Fourteen years of Conservative government broke Britain. Almost two years of this Labour government have only made things worse” (London Evening Standard, 1 May 2026).
The local government elections at the start of May gave Labour a pasting. Local elections rarely favour the government of the day, but this time the drubbing was particularly severe. Why?
Tax and spend
No business will last if it spends more than it has. Governments should 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, the government has gone on to spend more than it has, increasing taxes to pay for its 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 that there would be no increase in National Insurance, income tax, or VAT. But that painted the government into an unnecessary box, for, as she claimed on taking office, there was a £21.9bn black hole in state finances.
That reportedly gave Labour the grounds it needed to raise taxes just as it was spending £9.4bn to increase public pay. Consequently, in Labour’s first budget, in October 2024, taxes were increased by £42bn over the life of the current parliament.
It doesn’t help that Labour are continuing the Conservatives’ policy of squeezing citizen taxpayers – they’re not ‘customers’ as there is no choice but to pay – by means of fiscal drag.
We ought also to consider the impact of taxation on the rich. Like it or not, society needs the wealthy; they buy and maintain property, spend conspicuously, employ staff, invest in and own businesses, and pay (some) tax in the UK.
With Labour’s attack on non-doms, there’s been an exodus of the wealthy to other countries.
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 face 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 due to new levies they had to pay.
Employment has been taxed into oblivion. Hiring is down, unemployment is up, and people are having a very hard time finding work. Bodies such as the Institute of Directors and 55/Redefined don’t think that the Employment Rights Act 2025 (ERA) is helping. Designed to give employees more rights, it’s leading to fewer jobs being created.
While there’s nothing inherently wrong with protecting employees against rogue employers, there needs to be recognition that employers are under the cosh from higher national insurance contributions, increases in business rates, and the threat of AI.
If we consider that spending is a function of confidence, it was calamitous for the government to have flown so many kites about potential changes to taxation to gauge public reaction – changes to the tax-free allowance on pension withdrawals being a case in point.
Similarly, changes to inheritance tax caused consternation. Not only are pensions becoming part of an estate from April 2027, but there’s a change to inheritance-related taxation on family businesses passed from one generation to the next.
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.
In summary
Governments in a democracy live and fall according to their record. While all governments see their political fortunes change over time, it looks like Labour will be fortunate to last one term.