Tax rises under Labour coupled with the war in Iran have triggered the worst start to the year for businesses on record. Fewer businesses were set up in the first three months of 2026 than in the same period of any year on record, according to figures from the Office of National Statistics.
Just 78,655 companies were founded between January and March, an eight per cent decline compared to the same period last year. Meanwhile, 83,200 companies closed during the quarter, leading to the UK losing 4,500 businesses overall. The figures mark the first time fewer than 80,000 new companies were set up in the first quarter since quarterly records began in 2017.
Government Blamed for Decline
Andrew Griffith, shadow business secretary, blamed the fall on the government for undermining the private sector. He said to the Telegraph: “This shows the unfolding disaster for enterprise with fewer businesses being started and wealth creators either leaving or concluding it’s not worth the effort. To grow the economy, we need a Government on the side of risk-takers and entrepreneurs – instead, we have the opposite.”
Rising Tax Burden
The figures follow findings from the International Monetary Fund (IMF) which showed that the tax burden in the UK is also rising quicker than in any other major economy. This includes hikes to National Insurance contributions and rises to capital gains tax charged on investments. The IMF forecasts the raids will drive the government’s tax take to 42.1 per cent of GDP by the start of the next decade, a peacetime record for the country.
Tina McKenzie at the Federation of Small Businesses said increases in dividend tax, business rates and the tax on the disposal of business assets will “hit everyday entrepreneurs”. She said: “The figures underline in stark terms our call for the Government to do all it can to foster entrepreneurs and encourage people to take the leap into starting their own business.”
Impact of Iran War
New businesses declined across almost every industry, but the number of new finance and insurance companies founded fell by a quarter compared to last year. Health and social care suffered a similarly large drop. Anna Leach, chief economist at the Institute of Directors, also noted that the Iran war and subsequent spike in energy prices had made an already difficult situation worse for potential entrepreneurs. She said the conflict added a “new significant source of uncertainty” while higher minimum wage and extra regulations place a further burden on businesses.
She said: “It is hard to find positive reasons to be kicking things off right now when you have got quite such a big shock to the economic environment, and we know financial conditions have already tightened.” Borrowing costs have also risen sharply since the start of the war and markets are anticipating the Bank of England to raise interest rates over the course of the next year.
