Business

Ministers are turning up the heat on Britain’s biggest companies to fortify their cyber-defences, warning that a new generation of artificial intelligence tools, including Anthropic’s controversial Mythos model, risks unleashing a fresh wave of sophisticated hacking against UK plc.

In a pointed intervention, Baroness Lloyd of Effra (pictured), the cybersecurity minister, has written to almost 200 business leaders pressing them to back a new “cyber-resilience pledge” designed to drag boardrooms into the front line of digital defence.

To sign up, companies must make cybersecurity an explicit board-level responsibility, enrol with the National Cyber Security Centre’s early-warning service, and require the “Cyber Essentials” certification throughout their supply chains. The pledge will be formally launched in the summer and is intended to give investors, customers and trading partners a clearer benchmark by which to judge a business’s digital defences.

The push comes against a febrile backdrop. Anthropic, the San Francisco-based AI developer, revealed last week that it had decided not to release Mythos, a model honed for cybersecurity work, because of its uncanny ability to sniff out vulnerabilities in software. Instead, the company has quietly handed it to 40 US technology firms to help them shore up their defences.

While some industry watchers have dismissed the move as a marketing flourish, Wall Street, the City and financial regulators are taking it seriously. Britain’s biggest high-street lenders, including Barclays, Lloyds and NatWest, are understood to be in talks with Anthropic about gaining access to the model.

Andrew Bailey, governor of the Bank of England, has gone so far as to suggest that Anthropic may have “found a way to crack the whole cyber-risk world open”, an unusually colourful assessment from Threadneedle Street.

The UK’s AI Security Institute, one of the few bodies outside the United States to have put Mythos through its paces, described the model as a “step up” in capability. It concluded that Mythos was “at least capable of autonomously attacking small, weakly defended and vulnerable enterprise systems where access to a network has been gained”, though it stopped short of saying whether the model could breach better-fortified targets.

For SMEs, the assessment is uncomfortable reading. The lion’s share of “small, weakly defended” enterprise systems sits squarely in the small and medium-sized business community, where IT budgets are tight and dedicated security teams a rarity.

Dan Jarvis, the security minister, will press the pledge at this week’s CyberUK conference in Glasgow, where he is expected to argue that the country still suffers from a yawning perception gap between digital and physical crime. Drawing on the recent ransomware attack that crippled Jaguar Land Rover, Jarvis will tell delegates that had the same damage been done by “an old-school physical attack, it would have been the equivalent of hundreds of masked criminals turning up to dealerships across the country, breaking glass, smashing up computers and driving cars right off the forecourt”.

His message: “There is no real difference between them; they are both brazen acts of criminality.”

Lloyd struck a similarly urgent tone, telling business leaders: “The cyber threat facing UK businesses is serious, growing and evolving fast. AI is giving attackers capabilities that would have seemed extraordinary just a year ago and no organisation can afford to be complacent. Cyber-resilience isn’t just a technical issue; it’s a board responsibility and we’re asking every boardroom in Britain to prove they treat it as one.”

Despite years of warnings from Whitehall and the NCSC, the take-up of basic cyber hygiene measures remains stubbornly low. Just 56,000 Cyber Essentials certificates were issued in 2025, covering roughly 1 per cent of UK businesses, a figure that ought to give every chair, chief executive and finance director pause for thought.

Help, of a sort, is on the way. The Cyber Security and Resilience Bill, currently working its way through Parliament, will compel firms operating in critical sectors to raise their game. But ministers appear unwilling to wait for the legislation to land before applying pressure on the boardrooms they believe should already be ahead of the curve.

For SME owners and directors, the practical takeaway is unambiguous. AI-powered attack tools are no longer a theoretical worry kept at bay by the world’s best-resourced criminals. They are, increasingly, a clear and present danger, and a signature on a government pledge will count for little if the basics are not in place behind the boardroom door.

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Ministers urge British boardrooms to sign cyber-resilience pledge as AI threat escalates

The taxman has been forced into a tactical retreat over a contentious VAT levy on free medicines supplied to seriously ill patients, after Britain’s pharmaceutical heavyweights warned the policy was jeopardising the country’s standing as a global life sciences hub.

HM Revenue & Customs has confirmed to the industry that it will pause enforcement of disputed VAT bills issued against drugs companies providing medicines free of charge under early access programmes, while Whitehall thrashes out a longer-term settlement with the sector.

The climbdown follows mounting alarm in boardrooms after Bayer, the German pharmaceutical multinational, took the unprecedented step last month of halting new patient enrolments under its UK compassionate use scheme. *Business Matters* understands that at least one further major drugmaker is now actively weighing a similar withdrawal, raising the spectre of vulnerable patients being denied cutting-edge therapies.

At the heart of the dispute are post-clinical trial continuity of care and compassionate use schemes, arrangements designed to bridge the gap for patients with life-threatening or severely debilitating conditions who require access to medicines that have yet to secure marketing authorisation or NHS funding. For many of these patients, the schemes represent a clinical lifeline.

HMRC had begun issuing VAT demands to pharma companies on the basis that supplying these medicines, even gratis, constituted a taxable transaction. Industry leaders have argued the interpretation is not only commercially punishing but threatens to undermine the UK’s hard-won reputation as a destination of choice for clinical research, a sector ministers have repeatedly identified as central to the government’s growth ambitions.

The Association of the British Pharmaceutical Industry has been pressing ministers to confirm that “clinically justified” free-of-charge supply should fall outside the scope of VAT altogether. Without that assurance, executives warn, multinational sponsors will simply route their next generation of trials to more accommodating jurisdictions.

Following a recent meeting between Treasury officials and pharma chief executives, HMRC policy officials have informed the industry that, while the agency retains an obligation to protect Exchequer revenue, it accepts the government is “actively considering” the issue. The taxman has therefore agreed to exercise its discretion by extending review periods and holding off on enforcement action while talks continue. Crucially, however, HMRC has not budged on its view of historic tax liabilities, meaning bills already issued remain on the table.

A Whitehall source insisted that no blanket reprieve was on offer, with each case being assessed individually. “HMRC is not systemically extending review periods,” the source said.

The political temperature has been rising for months. Julia Lopez, the shadow science, innovation and technology secretary, wrote to Liz Kendall, her opposite number, in February warning that “the UK’s reputation as a home for clinical research is essential to our status as a life sciences superpower. That reputation is now at risk.”

In a reply this month, Lord Vallance, the science minister and a former senior executive at GSK, acknowledged ministers were “aware of the issue” and recognised “the importance of patients across the UK having access to innovative medicines.” He confirmed the government was in “discussions with the sector on this matter” and added: “I fully recognise the concerns you have raised.”

Bayer, in announcing its decision to suspend new enrolments, said it had been supplying treatments to patients with “life-threatening, long-lasting, or severely debilitating conditions or diseases which cannot satisfactorily be treated by any licensed and reimbursed drug in the UK.” Following the change in HMRC’s stance, the company said it had “made the difficult decision to pause the addition of new patients” while continuing to serve those already enrolled.

The Treasury maintains that “in certain circumstances the giving of goods away for free can be outside the scope of VAT,” and that where supply does fall within scope, a relief may apply. A government spokesperson said: “We are in active discussions with the sector. We fully recognise the importance of early access and compassionate use schemes and are fully committed to ensuring patients can continue to benefit from them.” A government source added that there had been no recent changes to UK VAT policy.

Lopez was unconvinced. “Even if HMRC has paused this damaging VAT charge, and it’s still not clear, the harm has already begun,” she said.

For an industry that contributes more than £17bn annually to the British economy and employs tens of thousands in high-skilled research roles, the affair has crystallised wider anxieties about the predictability of the UK tax environment. With the government banking heavily on life sciences as an engine of post-Brexit growth, ministers will be acutely conscious that a swift and unambiguous resolution is now needed — not least to reassure the international boardrooms where the next round of investment decisions is already being weighed.

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HMRC backs down on free-drugs VAT raid as pharma giants threaten UK exodus

More than 300 pubs, bars and restaurants have served their last pint and plated their last cover since the start of the year, as Britain’s licensed trade groans under the combined weight of higher wage bills, stubborn energy costs and customers who are quietly drinking and dining at home.

Fresh analysis from CGA by NIQ, the market research group, shows the number of licensed premises across the UK slipped to 98,609 by the end of March, a net loss of 305 venues since December, or rather more than three closures every single day. Coming on top of the 382 sites lost between September and December, the figures mean the country has shed 0.7 per cent of its licensed estate in just six months.

It is a slow-motion contraction that is now accelerating. Casual dining has been hit hardest, with the number of restaurants in that bracket falling by 0.9 per cent in the first quarter alone. Bars, nightclubs, traditional pubs and social clubs have also gone to the wall as households defer the small discretionary treats, a Friday curry, a midweek pint, a birthday dinner, that have long propped up neighbourhood operators.

Behind the headline numbers sits a familiar but increasingly toxic mix of cost pressures. April’s rise in employers’ national insurance contributions, the upward ratchet on business rates and persistently elevated food prices have eaten into already wafer-thin margins. Energy bills, which many operators had hoped would ease this year, have instead been pushed higher by the war in the Gulf, with wholesale gas and fuel prices feeding through to suppliers and threatening another round of menu price rises that publicans are reluctant to pass on to bruised customers.

Karl Chessell, director of hospitality operators and food at NIQ, said confidence among both businesses and consumers remained stubbornly low and warned that “geopolitical crises are likely to cause more damage in the months ahead”. While many operators had “shown remarkable resilience”, he said, “thousands are now nearing breaking point”.

“Soaring costs have taken a heavy toll on hospitality in the first quarter,” Chessell added. “Without targeted support, more closures can be expected over the rest of 2026.”

The trade is now lobbying ministers in earnest for a sector-specific package, a permanent reduction in business rates for hospitality, a lower rate of VAT on food and drink in line with much of continental Europe, and a softening of the national insurance changes for smaller employers. Operators argue that the alternative is the slow hollowing-out of the British high street, with independents and chains alike disappearing from market towns and city centres at a rate not seen since the depths of the pandemic.

For now, the maths is brutally simple. Wages, energy and tax are all rising; footfall and spend per head are not. Until that equation shifts, through policy, peace or a meaningful rebound in consumer confidence, the country’s pubs, bars and restaurants will keep going dark, three a day, one local at a time.

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Three licensed venues a day are going dark as Britain’s hospitality sector buckles

Britain’s technology industry is bleeding female talent at an alarming rate, with nearly 90 per cent of women abandoning the sector within ten years of joining, according to fresh research from Akamai that lays bare the scale of an inclusion crisis costing the UK economy up to £3.5bn a year.

The findings paint a damning picture of an industry that has long trumpeted its diversity credentials yet continues to lose women at the precise moment they should be ascending to its upper ranks. More than half of those who depart do so within five years, while the average tenure for a woman in tech now stands at just six years, a figure that suggests the sector’s much-vaunted pipeline initiatives are pouring talent straight into a leaky bucket.

Crucially, this is not a problem of recruitment. Women are walking away mid-career, typically when their experience and expertise are at their most valuable. The reasons cited will be wearily familiar to anyone who has tracked this issue over the past decade: poor working conditions, inadequate remuneration, a paucity of role models in senior positions, and workplace cultures that remain stubbornly resistant to flexibility and genuine inclusion.

Elizabeth Anderson, chief executive of the Digital Poverty Alliance, argues the problem extends well beyond the corporate balance sheet. “There is a clear and often overlooked link between digital exclusion and the retention of women in the tech sector,” she said. “When workplaces fail to provide inclusive, accessible environments — whether through equitable access to tools, flexible working, or supportive cultures, it can reinforce barriers that disproportionately impact women and ultimately drive them out of the industry.”

Anderson warns of a feedback loop with national consequences. “If the people designing and delivering technology do not reflect the diversity of those using it, we risk embedding exclusion into the digital services that underpin everyday life,” she said, pointing to the 19 million Britons still living in digital poverty. “Representation in tech is therefore not just a workforce issue, but a critical factor in ensuring technology works for everyone.”

The numbers reinforce her case. Women account for roughly a quarter of the UK technology workforce, but only a sliver progress to leadership roles, evidence, the research suggests, of structural barriers that calcify the higher up the ladder one looks.

For SMEs in particular, the exodus represents a bottom-line problem as much as a moral one. Sheila Flavell CBE, chief operating officer of FDM Group, believes the answer lies in coordinated action between Whitehall and industry. “The findings that almost 90 per cent of women leave the tech industry within a decade highlight a challenge we can no longer ignore,” she said. “Upskilling and reskilling women in digital skills must be a priority.”

Flavell is calling for clearer routes into technical and leadership positions, alongside targeted investment in artificial intelligence and digital training. She is particularly insistent on the need to support women returning to work after career breaks. “This also means providing dedicated pathways for women returners looking to re-enter the workforce after a career break, ensuring experienced talent is not lost to the tech sector.”

The economic stakes are considerable. The loss of mid-career women is feeding directly into Britain’s chronic technology skills shortage, with the resulting drag on productivity estimated at between £2bn and £3.5bn each year. Much of that expertise is not lost altogether, it is migrating wholesale to financial services, education and healthcare, sectors that have proved more accommodating of senior female talent.

There is, however, a glimmer of opportunity for employers prepared to act. A substantial proportion of women who have left the industry indicated they would consider a return under improved conditions: better pay, transparent progression, flexible working and cultures that move beyond box-ticking inclusion. For the SMEs and scale-ups that dominate Britain’s technology landscape, that represents a sizeable pool of experienced talent ready to be recaptured, provided they are willing to overhaul the structures that drove these women away in the first place.

The question now is whether Britain’s tech sector treats this latest evidence as another statistic to be filed away, or as the wake-up call it so plainly is.

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Britain’s tech sector haemorrhages female talent as nine in ten women quit within a decade

Sir Keir Starmer is facing fresh calls to spearhead a new cabinet committee charged with shielding British businesses from the mounting cost of global economic shocks, after one of the country’s most influential lobby groups warned that the UK remains dangerously exposed to disruption.

In a report published on Sunday night, the British Chambers of Commerce (BCC) said a decade marked by Brexit, the Covid-19 pandemic and Russia’s invasion of Ukraine had laid bare the absence of meaningful contingency planning to insulate the UK economy when global supply chains seize up.

The intervention lands at a pointed moment. The closure of the Strait of Hormuz for two months in the wake of the Middle East war is expected to push British inflation higher in the coming quarter and is already squeezing supplies of components used across the food and heavy industry sectors.

Shevaun Haviland, director-general of the BCC, said small and mid-sized firms had been “permanently bruised” by the procession of global shocks and could no longer be left to absorb the consequences alone.

“The UK’s inadequate economic security has become a drag on growth, competitiveness and national strength; yet it is still not given the focus and urgency it demands. The wars in Ukraine and Iran have demonstrated how supply chains can be disrupted overnight. We now live in a world where trade interests may be weaponised and where failing to secure key raw materials means failing to grow.”

At the heart of the BCC’s recommendations is the creation of an economic security cabinet committee, chaired by the prime minister of the day, that would coordinate Whitehall’s response to trade disputes, retaliatory tariffs and attempts to lock British exporters out of foreign markets.

The proposal arrives in the wake of the US Supreme Court’s decision in February to strike down President Donald Trump’s so-called “liberation day” tariffs,  a ruling that has done little to soften the chilling effect his protectionist agenda has had on free-trading economies, many of which have been forced to design emergency retaliatory measures of their own.

The lobby group is also urging ministers to follow Brussels’s lead and forge a UK version of the EU’s “anti-coercion instrument”, introduced in 2023 and dubbed by some officials a “trade bazooka”. The mechanism would empower the government to impose import charges, and other punitive trade restrictions, on companies based in jurisdictions judged to be in breach of international trade commitments.

The numbers underline the case. The BCC estimates that more than 75 per cent of British manufactured goods sold overseas begin life with imported components, while imports and exports together account for around 60 per cent of UK gross domestic product. Few advanced economies, the report argues, are quite so reliant on the smooth running of someone else’s logistics.

Diversifying that supply chain, so that Britain is less dependent on a narrow band of suppliers for the raw materials underpinning the industries of the future, must become a strategic priority, the BCC says. Demand for lithium, copper and aluminium, the building blocks of electric vehicles, batteries and renewable infrastructure, is forecast to surge over the next decade as consumers and businesses move to greener products.

China’s near monopoly over the refining and processing of many of those critical minerals is, in the BCC’s view, the clearest illustration of why ministers should accelerate domestic production where possible and steer supply chains towards “friendlier” trading partners.

For Britain’s small and medium-sized exporters — many still nursing the scars of Brexit-related red tape and pandemic-era cost spikes, the message from Westminster’s business community is becoming impossible to ignore: in an era of weaponised trade, economic security is no longer the preserve of the Foreign Office. It is, increasingly, a board-level concern.

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Starmer urged to chair new cabinet committee on economic security as supply-chain shocks bite

Jamie Oliver has launched a withering attack on the government’s tax treatment of British entrepreneurs, warning that ministers are “battering” the very people who power the country’s hospitality sector and risk turning Britain into an economic backwater.

Speaking to Times Radio, the celebrity chef said the cumulative weight of recent fiscal measures was choking the life out of small operators and would, in short order, make the UK “less and less important, less and less relevant” as a destination for ambition and enterprise.

“If you just batter the entrepreneurs, you’re going to get nothing,” Oliver said. “There is a lack of understanding of the chemistry of what a bubbling, buoyant, optimistic, aspirational, cool country called Britain looks like.”

His intervention lands at a particularly raw moment for the hospitality trade, which has spent the past year absorbing a punishing trio of cost increases. Higher employers’ national insurance contributions, coupled with a sharply lowered threshold at which they bite, have hit operators hardest in the wage bill. Add to that successive rises in the national minimum wage and a steeper business rates burden, and the margins of independent cafés, sandwich shops and neighbourhood restaurants have been pared to the bone.

Oliver argued that without meaningful incentives for risk-taking, Britain would forfeit its reputation as a crucible for new brands and ideas. “There needs to be enough fat in the game for people to take risk, and the association with risk and then innovation and creativity and brands … that can be amplified and grown,” he said.

His sharpest criticism, however, was reserved for what he characterised as a tax regime blind to scale. The system, he said, draws no meaningful distinction between multinational chains and the corner shop. “What’s interesting is the tax system and the government see no difference between, say, Domino’s or Starbucks and Linda and Paul down the road that run a small independent sandwich shop.” Smaller operators, he added, are being “chocked out”.

Oliver knows the sharp end of the trade better than most. His Italian-themed restaurant chain collapsed into administration in 2019, and only at the end of last year did he set in motion the revival of the Jamie’s Italian brand through a franchise tie-up with Brava Hospitality Group, the owner of Prezzo.

He is far from a lone voice. Earlier this month John Vincent, co-founder of healthy food chain Leon, accused ministers of “totally killing the restaurant industry”. Vincent, who last year bought Leon back from Asda before shuttering 22 sites as part of a restructuring, has emerged as one of the sector’s most outspoken critics, arguing that the tax burden on restaurants has become unsustainable.

When Leon filed for administration, he told the BBC the maths spoke for themselves: “Today, for every pound we receive from the customer, around 36p goes to the government in tax, and about 2p ends up in the hands of the company. It’s why most players are reporting big losses.”

For an industry that has long served as a first rung on the entrepreneurial ladder, and a generous employer of young, low-skilled and part-time workers, the warning from two of its highest-profile figures could scarcely be sharper. Unless the Treasury finds a way to differentiate between the corporate behemoths and the family-run independents, Oliver’s verdict suggests, Britain’s hospitality landscape will be poorer, blander and a good deal less ambitious for it.

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Jamie Oliver warns ministers are ‘battering’ Britain’s entrepreneurs

L’Oréal has delivered a bullish set of first-quarter numbers, with chief executive Nicolas Hieronimus crediting the so-called “lipstick effect” for propelling demand across Europe as households reach for small, affordable pick-me-ups against a backdrop of geopolitical strain and persistent inflation.

The Paris-listed group, whose stable of brands spans Garnier, Maybelline, Lancôme and La Roche-Posay, reported like-for-like sales growth of 7.6 per cent in the three months to March, taking turnover to €12.2 billion (£10.4 billion) and comfortably eclipsing City forecasts. Shares jumped more than 8 per cent on Thursday, providing welcome relief to investors unnerved by the drumbeat of profit warnings from the wider luxury sector.

Europe did the heavy lifting. Like-for-like sales across the region rose 10.3 per cent to €4.4 billion, a performance Mr Hieronimus described as “the absolute demonstration of what we call the ‘lipstick effect’ or the dopamine effect of beauty”. Consumer research conducted by the business, he added, showed that even shoppers feeling the squeeze were willing to trade down on big-ticket purchases while continuing to spend on cosmetics “as compensation for a stressful climate and a psychological buffer”.

The theory, first popularised in the wake of the dotcom bust more than two decades ago, holds that lipsticks, fragrances and moisturisers offer a low-cost hit of luxury when wallets tighten, and has long been seized upon by beauty bosses as a defensive selling point to investors.

The figures stand in marked contrast to the mood music from elsewhere in the luxury aisle. LVMH, Kering, owner of Gucci, and Birkin-maker Hermès have all flagged concerns about the knock-on effects of the Iran war on consumer confidence. Mr Hieronimus said the direct hit to L’Oréal had so far been contained, with the Middle East accounting for less than 3 per cent of group sales and the main drag confined to travel retail.

There was further cheer from China, where the group reported mid- to high-single-digit growth after a bruising multi-year slowdown. Mr Hieronimus pointed to a “clear acceleration” on 2025, with L’Oréal pulling well ahead of the wider market. The North Asia region nevertheless slipped 4 per cent on a like-for-like basis to €2.7 billion, a reminder that the recovery remains uneven.

Analysts at Barclays called the underlying performance “very impressive”, singling out professional products and dermatological beauty as standout divisions. Premium haircare and fragrances drove market share gains across North America, North Asia and Latin America.

“Despite current geopolitical and macroeconomic uncertainties, we are optimistic about the outlook for the global beauty market,” Mr Hieronimus said, adding that he remained “confident” the company would “continue to outperform and achieve another year of growth in sales and profit”.

For independent retailers and indie beauty brands watching from the sidelines, the read-across is instructive. While big-ticket discretionary spend is visibly cooling, the appetite for affordable treats appears remarkably resilient, a pattern that should give smaller operators in the personal care and wellness space cause for cautious optimism as they plot their own second-quarter trading.

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L’Oréal banks on the ‘lipstick effect’ as anxious shoppers reach for affordable luxuries

Britain’s employers have been saddled with a £28bn increase in their National Insurance Contributions bill over the past year, a figure that is £4bn higher than the Treasury’s own forecast and one that accountants warn is already forcing redundancies across the high street.

Figures compiled by UHY Hacker Young, the national accountancy group, show that the total cost to employers of NICs rose by 24 per cent in the 12 months to 31 March 2026, climbing from £116bn to £143.9bn. The leap followed the Chancellor’s decision to raise the main rate of Employers’ NIC from 13.8 per cent to 15 per cent on 6 April last year, a policy sold as a targeted measure to shore up the public finances but which critics argue has become a stealth tax on jobs.

Phil Kinzett-Evans, partner at UHY Hacker Young, said the overshoot could not be explained away by wage inflation alone. “The increase in NIC has caused real pain for UK businesses and I’m not sure that the policymakers recognised or admitted this when they increased the tax,” he said.

While Whitehall has cushioned the blow for the public sector, with roughly £5bn earmarked to offset the higher bill, including £515m ring-fenced for local authorities, private employers have been left to absorb the hit themselves. For many, that has meant either passing costs on to customers through higher prices or taking the knife to headcount.

The consequences are already visible in the labour market. A string of high-profile redundancy announcements in hospitality and retail over recent months have been explicitly blamed on the NIC increase, and recruitment activity has slowed as firms think twice before taking on new staff. Research by Reed, the recruitment firm, found that 46 per cent of businesses said the tax rise would influence their hiring decisions.

Kinzett-Evans added that the timing has been particularly unfortunate, arriving just as employers brace for the additional compliance costs baked into the Employment Rights Act. “It’s now fairly widely recognised that the level of tax in the UK has got too high,” he said. “Businesses need to see a sensible economic plan that sees a reduction in the business tax burden.”

With the Chancellor under growing pressure from business groups to ease the squeeze ahead of the next fiscal event, the question of who ultimately pays for the NIC rise, shareholders, staff or shoppers, is fast becoming one of the defining economic debates of the year.

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Employers hit with £28bn National Insurance Shock as rate rise bites harder than treasury forecast

British workers and the businesses that employ them have been clobbered by the steepest increase in employment taxes of any advanced economy, according to fresh analysis from the Organisation for Economic Co-operation and Development (OECD).

The Paris-based body’s annual audit of payroll taxes lays the blame squarely at the door of Chancellor Rachel Reeves, whose October 2024 Budget raised employers’ national insurance contributions and extended the freeze on personal income tax thresholds — a combination that has quietly tightened the screws on payrolls across the country.

For an average-earning worker in the UK, the so-called “tax wedge”, the gap between what it costs an employer to put someone on the books and what the employee actually takes home, climbed to 32.4 per cent last year, up from just under 30 per cent the year before. That 2.45 percentage point jump dwarfs the OECD-wide average rise of a mere 0.15 points and outpaces every other country in the 38-nation study. Only Estonia (1.95), Germany (1.34) and Israel (1.09) posted increases above a single percentage point.

While Britain’s absolute tax wedge still sits below the OECD average of 35.1 per cent, the velocity of the change is what has alarmed economists. The OECD warned that a widening wedge “tends to reduce incentives to work and hire by reducing take-home pay and increasing employers’ labour costs”, a particularly bruising message for the small and medium-sized enterprises that dominate Britain’s private-sector payroll.

The damage stems from two deliberate choices in the Chancellor’s maiden Budget. First, Reeves slashed the earnings threshold at which employers start paying national insurance to £5,000 from £9,100, a move that hit hardest those firms employing part-time workers and lower-paid staff, think cafés, care homes, corner shops and hospitality operators. Second, the headline rate of employers’ national insurance climbed from 13.8 per cent to 15 per cent.

The Treasury’s £25 billion-a-year revenue raiser has been accompanied by a stealthier levy: personal income tax thresholds remain frozen at 2021-22 levels until 2031, pulling more workers into basic and higher-rate bands as nominal wages creep up, the phenomenon known as fiscal drag.

The labour market is already showing the strain. Since the Chancellor first unveiled the employer NI rise in October 2024, payrolled employment has fallen by 143,000, according to official figures. The economic inactivity rate, the proportion of working-age adults neither in work nor looking for it, nudged up to 21 per cent in the three months to February, from 20.7 per cent in the previous quarter.

That deterioration pre-dates the eight-week-old US and Israeli airstrikes on Iran, which the OECD warned this month would inflict the largest growth hit in the G20 on Britain and the sharpest inflation jolt in the G7. Economists expect unemployment to climb further as households and firms rein in spending to cope with the conflict-driven surge in energy costs.

The OECD has repeatedly urged successive governments to tackle the “large compliance costs” baked into Britain’s tax code, arguing that complexity itself is a drag on hiring and growth. For the nation’s SMEs, already contending with higher borrowing costs, sluggish consumer demand and an unsettled global backdrop, the twin pressures of a rising tax wedge and an increasingly byzantine rulebook make the case for reform harder to ignore.

Whether the Chancellor heeds that advice in her next fiscal set-piece will be watched closely by business owners who have spent the past eighteen months absorbing a rise in employment costs unmatched anywhere in the developed world.

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UK employers saddled with sharpest tax rise in developed world, OECD finds

British consumers have stopped being patient. The average UK adult now abandons a mobile app that takes longer than three seconds to load, watches streaming content across four separate subscriptions, and expects a customer service response within the hour rather than the working day.

The cumulative effect on the entertainment sector has been the most significant behavioural shift since the arrival of broadband, and operators across every vertical — from cinemas to casinos, from Spotify to Sky — have spent the past five years rebuilding their businesses around a consumer who will churn for five pence of friction.

According to Ofcom’s Online Nation research, UK adults now spend close to four hours a day online, the majority of it on mobile devices, with attention fragmented across a growing catalogue of competing services. The strategic lesson underneath this pattern is not really about technology. It is about retention economics, and it applies well beyond entertainment. Any UK business competing for discretionary consumer spend — a point explored in our ongoing coverage of UK consumer behaviour trends — is operating in the same environment, facing the same expectations, and learning the same lessons the hard way.

The retention calculus has inverted

For most of the twentieth century, consumer businesses grew by acquiring new customers. Retention mattered, but it was a secondary metric. The assumption was that a reasonable product and a competent experience would keep most customers in place, and marketing spend was directed at the top of the funnel.

The digital shift inverted this. Customer acquisition costs across UK consumer categories have risen sharply, driven by Meta and Google ad inflation, data protection constraints that have narrowed targeting precision, and market saturation in most verticals. At the same time, switching costs for consumers have collapsed — comparison tools, portable accounts, and one-tap sign-ups mean that leaving one provider for another is now a three-minute decision rather than a three-week one.

The commercial consequence is that retention is now the primary growth lever in most UK entertainment businesses. The streaming cohort — Netflix, Disney+, Spotify, DAZN, Sky — spend materially more on product and personalisation than on acquisition marketing. Licensed UK gambling operators, arguably the sector under the heaviest retention pressure given that regulation continuously reduces their acquisition toolkit, have quietly become some of the most sophisticated customer-experience engineers in the British consumer economy. Independent review sites evaluating the best online roulette UK platforms publish detailed breakdowns of how these operators structure onboarding, retention mechanics, and responsible-play architecture — and the patterns on display are the result of a decade of forced innovation under regulatory pressure no other UK consumer sector has yet faced.

What high-retention entertainment businesses are doing differently

Three patterns recur across the most successful UK operators, regardless of vertical.

First, they have moved decisively to mobile-first product design. This is more than responsive layouts. It means rebuilding core flows — registration, payment, content discovery, support — around the reality that the majority of sessions now originate on a handset, often in short bursts of attention during commutes, breaks, or the half-hour between putting children to bed and falling asleep. Products designed for a desktop user with uninterrupted time fail silently in this environment. The operators winning are those who have redesigned their funnels assuming the user has forty seconds, one thumb, and an imperfect 4G signal.

Second, they have invested heavily in personalisation infrastructure. The old model — segment the audience into five or six personas and serve each a different homepage — is dead. Modern personalisation operates at the individual session level, adjusting content surfacing, messaging tone, promotional offers, and even interface complexity based on behavioural signals gathered in real time. Spotify’s weekly playlists, Netflix’s thumbnail variations, and the dynamic landing pages used by leading gambling operators are all manifestations of the same underlying investment in behavioural data infrastructure.

Third, they have shortened the feedback loop between product and commercial teams. Traditional consumer businesses release product updates quarterly and measure success in pooled cohort data. The high-retention operators run continuous experimentation programmes, A/B testing hundreds of changes per month with commercial KPIs visible to product teams in near-real time. The strategic effect is that product decisions stop being bets and start being iterations.

Regulation is not the enemy of retention

The shift above has happened simultaneously with a regulatory environment that has become substantially more demanding across UK consumer sectors. Financial services has the FCA’s Consumer Duty. Online platforms have the Online Safety Act. Gambling has a continuously tightening regime under the Gambling Commission’s LCCP framework. Food delivery faces evolving gig-economy rules. Even retail is navigating expanded product safety, digital markets, and advertising standards obligations.

The operators coping best with this compression have learned a counterintuitive lesson. Regulation is not the enemy of retention, and in some cases improves it. A customer who trusts the operator to handle their data well, flag risks honestly, and resolve complaints quickly is a customer who stays. The regulatory frameworks force the kind of customer-centric behaviours that sophisticated retention teams were trying to instil anyway. The businesses struggling are those that treated compliance as a cost centre rather than a product investment, and now find themselves retrofitting trust into a product architecture built for extraction.

This is particularly visible in gambling, where the regulatory envelope has tightened every year since 2020 — advertising restrictions, feature bans on auto-spin and turbo play, deposit thresholds triggering affordability checks, and a broader cultural expectation of demonstrable consumer care. Operators who responded by rebuilding their product around responsible engagement rather than maximised session length have retained customer bases that their more aggressive competitors have bled.

Live engagement as the new differentiator

The newest competitive frontier across UK entertainment is live, interactive content — and the strategic reasoning behind it is worth understanding even for businesses that will never livestream anything.

Passive content is increasingly commoditised. Every major streaming service has roughly the same library of prestige drama. Every bookmaker has roughly the same Premier League markets. Every music service has roughly the same fifty million tracks. Differentiating on catalogue is almost impossible at scale, and pricing power collapses accordingly.

Live, interactive engagement breaks this parity. A live dealer roulette table, a Peloton class with a real instructor, a Twitch stream with chat, a live podcast recording with audience questions — these experiences cannot be commoditised because each one is genuinely unique, time-bounded, and shared with other participants. The product becomes the moment, not the content, and the moment cannot be replicated by a competitor the following Tuesday.

The implications generalise. Any UK consumer business whose product could plausibly be delivered as a live or interactive experience should be investigating that option, because the retention premium on live engagement consistently exceeds the cost of producing it. Retail has learned this through shoppable livestreams. Fitness has learned it through class formats. Entertainment, broadly defined, is the next category where this lesson will compound.

The lesson for the broader UK economy

The UK entertainment sector is, in one respect, a preview of what every consumer-facing UK business will face within three to five years. The same acquisition cost pressure, the same mobile-first expectations, the same personalisation arms race, the same regulatory compression, and the same shift toward live and interactive formats will reach retail, financial services, hospitality, professional services, and beyond. The sectors that adapt earliest will retain margin. The sectors that treat the shift as a temporary disruption will lose it.

The strategic insight is simple and uncomfortable. The British consumer is not becoming more demanding because consumers have changed — the underlying psychology is the same as it ever was. They are becoming more demanding because the operators who set the benchmark in their daily digital lives have raised it to a level that other sectors will be measured against whether they like it or not. A utility company is now being compared, implicitly, to Monzo. A law firm is being compared to Gumtree. A specialist retailer is being compared to Amazon.

The entertainment sector got here first because the pressure hit first. The rest of the UK economy is catching up to the same conversation, and the operators watching closely are the ones who will survive it.

Read more:
The Digital Shift: How Consumer Habits Are Forcing the UK Entertainment Sector to Innovate