Taxation: Small and Medium-sized Enterprises

Peter Fortune Excerpts

Tuesday 3rd February 2026 Westminster Hall

[Gregory Stafford (Farnham and Bordon) (Con)]

I beg to move,

That this House has considered the impact of taxation on small and medium-sized enterprises.

It is a pleasure as always to serve under your chairmanship, Mr Dowd, and I am grateful to colleagues for attending this debate. Small and medium sized-enterprises are the backbone of our economy. They create jobs, sustain local communities and keep our high streets alive. However, since the autumn Budget 2024, they have been met with higher taxes, higher costs and a Government who appear indifferent to whether they survive at all.

It is almost impossible to know where to start with this debate, given the Government’s complete failure on the economy and sustained neglect of business and enterprise. The Prime Minister speaks the language of growth, but lacks the backbone to take the decisions needed to achieve it. If the debate were simply an exercise in cataloguing failure, we would be here all day. Instead, I will focus on the real-world consequences of that incompetence for the small and medium-sized businesses that keep our economy moving.

In my constituency, I repeatedly hear the same message from business owners about staffing pressures, soaring energy bills and rising financial costs, which in many cases have more than trebled as a direct result of decisions taken by this Government. That is not anecdote; it is reflected clearly in the data. Research from Xero shows just how precarious the situation has become: two in five SMEs do not even know whether they were profitable last month. That is not confidence; that is business flying blind.

Since the 2024 Budget, Labour has made a deliberate political choice to increase the burden on retail, hospitality and leisure. Those are not marginal sectors—they are the lifeblood of our town centres, as major employers and key drivers of local economic activity.

[Peter Fortune (Bromley and Biggin Hill) (Con)]

Last week I was lucky enough to host a roundtable with some SMEs from Bromley, including the excellent Martin from the Crown and Anchor. They said to me that this Government’s policies, including the jobs tax, are restricting their ability to grow and to hire young people. Would my hon. Friend agree that abolishing business rates would give small businesses the boost that they need to thrive?

[Gregory Stafford]

I entirely agree with my hon. Friend. Like him, I have held roundtables with hospitality businesses, which are saying the same thing as others: they want to see a cut in business rates. The Conservative pledge to entirely scrap business rates for businesses with bills under £110,000 is the right step and would be welcomed by business. I hope the Minister will take up that idea; good ideas should be taken up by the Government, but they seem to have a problem with doing that.

In mentioning business rates, my hon. Friend reminds me that the Labour party manifesto—which I am sure you read, Mr Dowd—pledged that

“Labour will replace the business rates system, so we can raise the same revenue but in a fairer way.”

That clearly has not happened, because businesses are being hammered.

--- Later in debate ---

[Gregory Stafford]

I thank the hon. Member for, as always, bringing his experience from Northern Ireland. That emphasises the point that I was making: this is a whole-country problem. He is absolutely right that we are on a knife edge. We are at a tipping point for our small and medium-sized enterprises, and if they go under, the consequences will be dire. If one wants to speak Treasury speak, that means the Treasury will actually raise less money. The only way that the Treasury will raise more money is by freeing up businesses to expand, grow and employ more people. That is how we will get our economy going, not by taxing every single business until the pips squeak.

I turn now to hospitality, which has been a focus of mine since I was elected. It underpins community life and provides work for young people and for those who rely on flexible hours. Yet the Government slashed retail, hospitality and leisure relief from 75% to 40%—an ideological and damaging decision—which will be followed by eye-watering increases in rateable values from April this year.

UKHospitality data shows that the average pub will see its business rates rise by 15% in the first year, climbing to a 76% increase by year three. At the same time, online and out-of-town competitors are being protected. Distribution warehouses used by online giants will see increases of just 9% in year one and 16% by year three. This is not a level playing field; it is actively tilted against the high street.

The Government’s so-called emergency pubs relief, announced this year, does little to address the scale of the problem. It is a sticking plaster, not a solution. Just one in 20 retail, hospitality and leisure businesses will benefit, and even then the average pub will still be paying £5,700 more in business rates than before.

Business rates are simply not being reduced, and those pressures are compounded by the changes to employer national insurance contributions introduced at the 2024 Budget. For the hospitality sector alone, that amounts to £1 billion every single year. More than 774,000 hospitality workers have been dragged into employer national insurance for the first time, disproportionately affecting part-time staff such as bar workers and waiting staff. Flexible work is being punished. Young workers are being hit hardest, and employing people is becoming more expensive at precisely the wrong moment. That is not pro-growth and it is not pro-work.

VAT policy has also failed small businesses. The £90,000 VAT registration threshold actively discourages growth and creates perverse incentives for firms to cap expansion. The Government have ignored repeated calls for a reduced VAT rate of 12.5% for hospitality, a policy that would support growth, improve competitiveness and align the UK with many of our European neighbours. The refusal to act is holding back an entire sector.

The Parliamentary Private Secretary, the hon. Member for Hitchin (Alistair Strathern), is chuntering from his seat. I am sure he will be able to hold his own debate at some point to tell us all what is going on in his constituency. I suspect that, if he were honest, he would tell us about the impact that his Government’s policies have had on the sector, and how they are absolutely destroying his high street, as they are mine.

These pressures are not theoretical; they are being felt by real businesses across my constituency. For example, at Birdies café in Farnham Park, business rates have increased by 450%—from £290 to £1,600 a month—a change that has already cost the business a member of staff. Energy bills have risen from £300 to £400 a month to £3,500 a month, while rising wage costs and changes to employment law have forced the owner into rolling three-month contracts—a worse outcome for workers, driven entirely by the Government’s pressure and policies. At the Bat and Ball pub, business rates are doubling from £800 to £1,600 a month. Minimum wage changes have added £56,000 a year to its wage bill.

Across my constituency, community businesses such as the Antiques Warehouse, the Packhouse, the Bluebell pub, Serina, the Six Bells, the Healy Group, and Hamilton’s in Farnham; Acorns Coffee, the Dairy, Issaya and Smallworld IT in Bordon; Oliver’s café and wine bar and Davids menswear in Haslemere; Passfield Stores in Passfield; Little Latte in Tilford; the General Wine Company and Stedman Blower in Liphook; and the Greatham Inn in Greatham have all written or spoken to me and are facing the same relentless squeeze from Government tax and regulatory decisions. These are not failing businesses; they are community anchors being priced out by this Government’s policies.

These issues are not confined to hospitality. Yesterday I met representatives of Medicines UK to discuss the impact of Government policy on suppliers of generic medicines. They raised serious concerns about the extended producer responsibility packaging tax. Packaging is obviously mandated by the Medicines and Healthcare products Regulatory Agency for safety reasons, leaving companies with little ability to reduce their tax liability. As a result, costs are either absorbed or passed directly on to the NHS and therefore the taxpayer.

[Peter Fortune]

I know that my hon. Friend is talking specifically about businesses and enterprises, but on that last point, the decisions taken by the Government are also impacting charitable institutions. Indeed, I have met some in my constituency of Bromley and Biggin Hill that are having to let charitable staff go, which is having a further impact on the NHS.

[Gregory Stafford]

My hon. Friend is absolutely right. One perverse outcome of the many taxes that the Government have put on is that although the NHS is, rightly, exempt from some of these tax rises, those who operate around the NHS—for example, care homes, hospices and other charitable institutions—are being hit. Even GP surgeries are being hit. This is the nonsense that we are seeing from this Government: people taking policy off the shelf from Treasury civil servants without understanding the real-world impact that it will have on businesses, the charitable sector and, in general, our constituents.

As my hon. Friend suggests, these are taxes on the NHS by another name. Extended producer responsibility sits alongside the VPAG—voluntary scheme for branded medicines pricing, access and growth—levy, which takes 10% to 35% of NHS sales from manufacturers. If the measures are taken together, the Government are heavily taxing lifesaving medicine, often at higher rates than in comparable systems overseas, with clear implications for supply and sustainability.

In my November debate on alcohol duty—which I am sure you read in detail in Hansard, Mr Dowd—I was disappointed by the Exchequer Secretary’s dismissal of the impact of tax rises on hospitality. Since October 2024, 90,000 hospitality jobs have disappeared. If that many jobs had gone from a car plant or an oil refinery, the House would be in uproar, but because it is pubs and cafés, Ministers look the other way. That is a scandal.