How UK businesses can cut costs and stay resilient as taxes and rates rise

UK businesses are entering one of the toughest trading periods in more than a decade. Rising taxes, increasing business rates, and slowing economic growth are tightening margins across almost every sector, from retail and hospitality to manufacturing and professional services. Forecasts indicate that growth will weaken further into early 2026, while operating costs continue to climb, prompting many firms to reassess investment plans and search for practical ways to stay profitable.

With government support becoming less predictable, organisations are focusing on what they can influence: cutting operational costs, modernising financial systems, and improving cash-flow efficiency. From payment processing and recurring billing to shifting more sales online, the most resilient businesses are those using technology to offset rising overheads.

This guide examines how the tax increases and higher business rates in 2025, coupled with a softer economic outlook, have affected UK firms, and explores how smarter payment infrastructure, including open banking and Variable Recurring Payments (VRPs), can build resilience, strengthen margins, and support sustainable growth moving forward.

What rising taxes and slowing growth mean for UK businesses

The latest UK business tax news 2025 paints a challenging picture for companies. A combination of higher taxes, increased operating costs, and weakening economic growth is putting significant pressure on margins, leaving many firms reassessing investment plans and tightening spending.

Fresh analysis from the EY ITEM Club UK Growth Report 2025 forecasts that UK economic growth is expected to slow from 1.5% this year to 0.9% in 2026. This downturn comes as business investment is projected to fall sharply, dropping from 3.7% in 2025 to just 0.8% by 2026. The Chancellor is grappling with a fiscal shortfall of around £30 billion, increasing the likelihood of further tax rises and spending cuts, measures that will directly influence profitability, hiring, and long-term planning.

Corporation tax rising to 25%, combined with higher National Insurance contributions and the introduction of new levies, is already weighing heavily on business confidence. The Institute of Directors reports sentiment at record lows, falling to 74 in September and only slightly improving to 73 in October. Many firms have shortened their planning cycles, paused recruitment, or frozen discretionary spending as uncertainty becomes the norm. Several economists describe the current environment as a “permacrisis” for UK businesses.

Despite this, the landscape is not entirely bleak. The Barclays Business Prosperity Index shows that while 45% of firms believe tax cuts are essential, an overwhelming 90% still plan to increase investment next year. The vast majority, nearly 90%, are already adopting artificial intelligence and automation to cut costs and improve efficiency, and 42% expect to hire for AI-focused roles. This shift signals an important trend: as government support remains uncertain, businesses are taking control of their own resilience by investing in technology, efficiency and smarter financial models.

How rising business rates are putting pressure on UK retailers and small businesses

The rise in business rates in the UK in 2025 is placing intense pressure on retailers, hospitality operators, and small businesses already struggling with inflation and slowing consumer demand. Business rates are a fixed, unavoidable cost, and as temporary pandemic relief fades, bills are climbing sharply. After receiving a 75% discount during the pandemic, businesses saw relief fall to 40% earlier this year, leaving many facing rate bills that have effectively doubled overnight.

How higher business rates are hitting the high street

The increases are stark across the board:

• Independent retailers are seeing their annual rates rise from around £3,751 to £9,003.
  
• Restaurant operators face jumps from £5,563 to £13,351 a year.
  
• Nightclubs, already among the most vulnerable businesses, will see increases from £7,479 to £18,245.

These are not minor adjustments. For many small shops, cafés and hospitality venues, these increases represent the difference between staying open and shutting down.

The risk of widespread closures

The British Retail Consortium has warned that the government’s proposed surcharge on large properties valued above £500,000 could trigger the closure of up to 400 large stores, putting 100,000 jobs at risk. Large “anchor” retailers play a crucial role in attracting footfall to high streets and shopping centres. When they close, surrounding cafés, pubs, salons, and independent shops also suffer.

A wave of high street shop closures in the UK would accelerate the visible decline of town centres already struggling with rising costs, online competition, and fragile consumer confidence.

Tough choices for retailers under pressure

Faced with rising business rates, higher National Insurance contributions, new packaging taxes, and wider inflationary pressures, retailers are being forced into difficult decisions:

• Raising prices, risking lower footfall
  
• Cutting staff, affecting service quality
  
• Reducing stock levels to free up cash
  
• Pausing investment and refurbishments

The cumulative effect is severe. Industry estimates suggest retailers were already absorbing an additional £7 billion in costs before the business rate changes take effect. For many, margins are now stretched to breaking point.

Why UK business leaders are calling for tax cuts and smarter cost-saving solutions

Across the UK, business leaders are increasingly vocal about the need for tax relief. A recent Barclays survey shows that 45% of firms are calling for government tax cuts, arguing that rising costs, higher business rates, and sluggish growth are squeezing margins to breaking point. But while the demand for intervention is clear, many leaders recognise that relying solely on government action is no longer viable.

Instead, businesses are accelerating investment in technology. According to the same research, nearly 90% of UK organisations are already adopting AI, automation, and digital tools to increase efficiency and reduce operational costs independently. This marks a significant strategic shift: rather than waiting for tax changes, companies are modernising their systems to protect profitability.

AI adoption rises as firms seek smarter ways to reduce costs

The rise of artificial intelligence is reshaping hiring and investment priorities:

• 42% of businesses are recruiting for AI-specific roles
  
• 20% are creating entirely new AI-focused positions
  
• 70% of leaders believe rapid AI adoption could help the UK become a global leader in AI capability

The message is clear: if tax relief comes slowly, businesses will turn to technology that increases productivity, automates manual work, and protects margins without relying on redundancies or large structural cuts.

A missed opportunity: reducing payment processing fees

While many firms focus on high-profile digital transformation, one of the most immediate SME cost-saving strategies in the UK is often overlooked: optimising payment processing costs.

Many retailers and small businesses pay transaction fees of around 2% on every customer payment. By switching to more efficient modern payment systems, including Open Banking payments, businesses can reduce these fees to around 0.5%.

For retailers handling hundreds of thousands of pounds in transactions each month, this translates into:

• Thousands of pounds saved every quarter
  
• Significant year-on-year margin protection
  
• Lower costs without cutting staff or raising prices

At a time when every percentage point matters, revisiting payment processing is one of the fastest and most reliable ways for businesses to reduce operational expenses.

How open banking reduces payment processing costs for UK businesses

Open banking payments in the UK are rapidly reshaping how businesses process transactions. Instead of routing payments through card networks such as Visa and Mastercard, open banking enables secure, direct bank-to-bank transfers using regulated APIs. For customers, the experience feels seamless, but for merchants, the financial impact is substantial.

Why open banking is cheaper than traditional card payments

Card processing fees remain one of the biggest hidden costs for UK businesses. Typical merchant charges range between 1.5% and 3% per transaction, once authorisation fees, gateway charges, PCI compliance costs, and terminal rental are included.

Open banking, by contrast, operates at a fraction of the cost, often below 1% and sometimes significantly lower depending on the provider. For a business taking £100,000 per month in card payments, switching even part of this volume to open banking can save thousands of pounds annually.

A real example illustrates the shift:

A car dealership in Cambridge now processes 96% of its customer transactions through instant Pay by Bank options. By bypassing card schemes, the dealership saves over £6,000 every month in card fees alone.

Faster settlement and improved cash flow

Speed is another major advantage. Research from GoCardless indicates that open banking payments are:

• 48% faster to settle
  
• 35% lower in payment fraud than card transactions

Faster settlement improves cash flow, reduces borrowing needs, and gives businesses clearer, real-time visibility of incoming revenue.

Better customer experience with Pay by Bank options

Pay by Bank is quickly becoming an expected checkout option, particularly for younger and mobile-first shoppers. Customers benefit from:

• No card fees
  
• No risk of expired or stolen card details
  
• Instant confirmation from their bank app

Merchants benefit from fewer failed payments and a more reliable checkout experience, especially important for high-value purchases in sectors like automotive, electronics, and travel.

Operational savings: automation, reconciliation and admin reduction

The benefits extend beyond transaction fees. According to NatWest, open banking can save UK businesses up to 150 hours per year by automating back-office tasks.

When open banking feeds payment data directly into accounting tools such as Xero or QuickBooks, businesses gain:

• Automatic payment-to-invoice matching
  
• Reduced manual reconciliation
  
• Fewer errors and less time spent chasing unmatched payments
  
• Real-time financial visibility

Teams that previously spent hours fixing discrepancies can instead focus on revenue-generating work.

Flexible adoption through trusted UK open banking providers

Providers such as Wonderful, one of the UK’s leading open banking payment specialists, offer simple onboarding and flexible integration. Many businesses choose to introduce open banking gradually, adding Pay by Bank alongside card payments until customer uptake grows.

This phased approach reduces friction, allows early cost savings to be measured clearly, and provides merchants with confidence before shifting more volume away from traditional card rails.

Variable recurring payments: How VRPs improve recurring revenue and cash flow

Variable Recurring Payments (VRPs) mark one of the most significant upgrades to the country’s payment infrastructure in years. With the initial phase, allowing customers to move money between their own accounts (“sweeping”), already live at major banks, a broader rollout of commercial VRPs, enabling payments between individuals and businesses, is scheduled for a later date. Unlike traditional Direct Debits, VRPs will allow authorised businesses to take automated payments of varying amounts without requiring customers to reconfirm each transaction.

How VRPs work and why they matter

VRPs operate within pre-agreed limits, giving businesses the flexibility to adjust charges based on usage, renewals, tier changes or consumption levels. This makes VRPs ideal for:

• Subscription models
  
• Gyms and fitness centres
  
• Software-as-a-service (SaaS) billing
  
• Utilities and metered services
  
• Memberships and loyalty programmes

Because payments move directly between customer bank accounts and the merchant, failure rates drop significantly compared to card-on-file billing, where expired, lost or replaced cards often disrupt recurring revenue.

Operational benefits for UK businesses

The impact on business operations is immediate:

• Fewer failed payments thanks to bank-level authentication
  
• Automatic reconciliation that reduces manual accounting work
  
• More predictable cash flow, supporting better planning
  
• Lower admin burden, freeing teams for customer-facing work

Early VRP adopters report a 15% to 20% increase in successful recurring payments compared with card-based subscriptions, a critical gain for sectors operating on slim margins.

Where VRPs fit into the FCA roadmap

The FCA’s rollout plan begins with:

• Phase 1: charity donations and utility payments
  
• Phase 2: commercial and retail use cases 

This phased approach ensures banks, regulators and payment providers can standardise systems before VRPs become widely available to all businesses.

Building a future-ready recurring payments ecosystem

Retailers, membership organisations and subscription-led businesses are already integrating VRPs alongside open banking for one-off transactions, creating a unified payment environment that simplifies operations and strengthens revenue continuity.

Industry providers including TrueLayer, Yapily and GoCardless are actively expanding VRP capabilities, giving UK businesses a practical pathway to automate billing, reduce failures and streamline financial processes without additional overhead.

From high street to online: Cost-effective ways for UK retailers to expand into eCommerce

For retailers facing rising business rates and shrinking margins, moving part of the operation online has become a practical way to reduce fixed costs and reach new customers. The economics have shifted. Running an eCommerce site no longer demands a large upfront investment or complex technical expertise, making digital expansion a realistic option for shops of any size.

Setting up an online store: Affordable choices for UK businesses

Most UK retailers compare Shopify, WooCommerce and BigCommerce when moving online:

• Shopify: Plans start at around £29 per month, rising to £319 for advanced features.
  
• WooCommerce: Free to install, with hosting typically £5 to £30 per month and a domain around £10 per year.
  
• BigCommerce: Starts at roughly £30 per month with unlimited bandwidth, product storage and staff accounts.

Many of these platforms now support open banking payments. For example, a number of WooCommerce payment plugins offer the Pay by Bank option that lets customers pay directly from their bank account, reducing transaction fees for merchants and making checkout faster.

Why going digital reduces financial pressure

Shifting part of a business online provides several structural advantages:

• Lower operational costs compared with maintaining a full retail footprint
  
• No utility bills or facilities maintenance for additional sales volume
  
• More flexible staffing, especially during seasonal fluctuations
  
• Reduced cost per transaction when combined with open banking payments
  
• Easier access to customer data, trends and inventory insights

Many independent retailers have adopted a hybrid strategy: keeping a flagship store for footfall and brand experience, while driving most transactions through an online shop with minimal overhead.

A low-risk digital transformation strategy

Small retailers do not need to overhaul their entire business at once. A phased approach works best:

1. Start with a simple online catalogue featuring best-selling items.
   
2. Offer a mix of traditional card payments and lower-cost open banking options to reduce checkout friction.
   
3. Use mobile POS systems or payment APIs when ready to streamline online and in-store sales.
   
4. Expand product ranges and automate fulfilment as demand grows.

This gradual method reduces risk and builds digital resilience, helping retailers balance high business rates with predictable, low-cost online revenue streams.

Building resilience: How UK businesses can save money in 2025 and thrive in 2026

Across the UK, businesses that have maintained stability in 2025 are those which have taken proactive steps to control costs, streamline operations and rebuild margin instead of waiting for government relief. A layered approach delivers the strongest impact, with each stage creating compounding savings.

1. Reduce payment processing costs with open banking

Payment costs are among the most controllable operational expenses. Shifting even part of a business’s transactions from cards to open banking immediately lowers fees, often from 1.5% to 3% to a fraction of a per cent.

For a retailer handling £500,000 in annual turnover, this can translate into £5,000 to £10,000 in direct savings. Integration is typically straightforward, supported by modern payment APIs and UK payment gateways.

Beyond fees, the time savings are significant. Research from NatWest shows that open banking automation removes up to 150 hours of manual reconciliation each year, freeing staff for more valuable work.

2. Expand digitally to reduce physical overheads

For businesses constrained by rising rents and rates, moving even 20% of sales online can reduce shopfront overheads by 20% to 30%.

Platforms such as Shopify, WooCommerce and BigCommerce cost only £25 to £30 per month, a fraction of physical property costs. These platforms now support open banking as a standard payment option, allowing customers to have a smoother checkout experience while enabling merchants to keep more of every sale.

The strongest performers adopt a hybrid model: maintaining a physical presence for brand visibility while shifting transactional volume online, where costs are lower and margins are stronger.

3. Automate key operational tasks

Automation is no longer optional for businesses working with limited resources. Integrating payment systems with accounting tools such as Xero, QuickBooks, or Sage eliminates manual reconciliation, reduces errors and accelerates financial reporting.

Variable Recurring Payments (VRPs) further streamline subscriptions, memberships and usage-based billing. Payments adjust automatically within agreed limits, lowering failure rates and removing routine administrative work.

For small businesses, these efficiencies free teams to focus on service, sales and customer retention rather than back-office tasks.

The compound impact

When UK businesses implement all three layers, lower-cost payments, digital expansion and automation, they typically achieve 5% to 8% margin improvement. In a high-tax, high-cost environment, that lift often determines whether a business stabilises or continues to decline.

Adoption is accelerating across the country. Open Banking Limited reports that 75% of UK businesses now use open banking, with 93% expecting usage to grow over the next five years. Early adopters are building long-term competitive advantages that persist beyond the current economic challenges.

The path ahead: What UK businesses can expect in 2026

The pressures facing the UK economy, higher taxes, rising business rates and slow growth, are unlikely to ease quickly. Yet businesses that act decisively now can rebuild resilience and regain momentum.

The strongest operators are focusing on what is within their control:

• Reducing payment friction and processing costs
  
• Shifting sales to lower-cost digital channels
  
• Automating financial and operational workflows

A Payments Association survey of 500 UK SMEs shows that open banking is valued for both improved customer experience (58%) and lower fees (51%), signalling a clear shift in business priorities.

Digital transformation and smarter payment infrastructure are no longer long-term aspirations; they are the most reliable levers available to protect margin in 2025 and strengthen competitiveness for 2026 and beyond.

FAQ

Why are UK business taxes and rates increasing?

Business taxes and rates are rising due to inflation, higher public spending and government revenue targets. This puts pressure on cash flow, especially for SMEs, making cost-saving and efficiency critical.

How are rising business rates affecting UK retailers?

Higher rates increase operating costs for shops already facing lower footfall. Many retailers are cutting space, shifting online or using cheaper payment tools to stay profitable.

How do rising taxes impact small businesses in the UK?

Small firms face tighter margins as taxes rise, leading to reduced investment and slower growth. Many are turning to digital payments, automation and eCommerce to offset higher costs.

Why are UK business leaders calling for tax cuts?

Leaders say high taxes limit hiring and investment during slow growth. They argue that reducing tax burdens and encouraging cost-saving tech would strengthen productivity and resilience.

How can open banking help UK businesses cut costs?

Open banking payments bypass card networks, cutting processing fees and speeding settlement. This helps businesses lower costs, improve cash flow and reduce dependence on expensive payment rails.

What are Variable Recurring Payments (VRPs)?

VRPs let customers approve flexible, automated payments through open banking. They reduce failed transactions, improve cash flow and offer cheaper alternatives to direct debits or card subscriptions.

How do modern payment solutions reduce business costs?

Digital and open banking payments cost less than card fees and settle faster. This helps firms cut expenses, boost cash flow and avoid hidden processing charges that erode margins.

Why are more UK retailers moving online?

Online selling reduces rent and rates, expands reach and lowers transaction costs. Retailers can stay competitive by combining eCommerce with cheaper, faster open banking payments.

What is the most cost-effective way for UK businesses to start selling online?

Using low-cost eCommerce platforms with integrated open banking payments keeps setup and transaction costs down, helping businesses grow without heavy upfront investment.

How can UK businesses stay resilient as taxes rise?

By cutting payment fees, automating billing, reducing physical overheads and expanding online. These steps help protect margins, improve cash flow and support long-term stability.