High cost island: Burnham warned he risks worsening Starmer's anti-business policies with fresh tax raid

Andy Burnham has been warned by the Bank of England that UK business is already feeling the squeeze even as he plots fresh tax raids – as a top economist dubbed Britain ‘high-cost island’.

Bank governor Andrew Bailey said firms were under pressure from rising costs and struggling to pass them on to customers.

He said businesses were being hit by surging energy bills which they were struggling to pass on to customers, leaving them to resort to cost cuts or to accept lower profits.

‘Firms are clearly squeezing margins as well as cost-cutting,’ Bailey told an event on the sidelines of the International Monetary Fund (IMF) meetings in Bangkok.

And he said the longer high energy prices go on, as the Iran war chokes off oil and gas supplies, the more likely it would be that firms put up prices to protect margins.

The comments came as it emerged that Chancellor John Healey is plotting a tax raid on banks at the Budget later this month.

Andy Burnham was warned he risked compounding mistakes made by Keir Starmer

It came on top of fears that Healey could also target online retailers and gambling firms, as well as commercial property worth more than £500,000.

And it exacerbates the pain already being caused by an employer national insurance (NI) raid by his predecessor Rachel Reeves as well as steep rises in the minimum wage.

Andrew Wishart, senior UK economist at Berenberg, argued that the increasing burden had turned the UK into ‘high-cost island’.

And as Burnham plots Budget giveaways designed to alleviate cost of living pressures for households, Wishart argued that ‘policies designed to alleviate the adverse effect of low growth on voters’ finances have tended to make things worse’.

For example, higher minimum wages have hit profit margins ‘damaging companies’ incentives to produce and sell goods and services’.

Wishart said that had been compounded by the NI hike, which added to the cost of hiring.

‘The risk is that recently appointed Prime Minister Andy Burnham raises the cost of doing business further, compounding Keir Starmer’s most significant policy error,’ he added.

Describing Britain as the ‘world leader on costs’, Wishart said that ‘sharp increases… make the UK less competitive, and risk entrenched underperformance if left unaddressed’.

The comments came as Healey was urged by a top official at the IMF to slash benefits spending rather than pile more tax pain onto Britain.

Helge Berger said ‘doing more on the expenditure side makes good sense’ including ‘better tightening of social benefits’.

Meanwhile, a poll from the Centre for Policy Studies (CPS) think-tank revealed 57 per cent of small businesses believe the government is not on their side.

The survey found that energy costs are the most pressing concern followed by business rates and employment costs, and that more than half felt the burden of tax and red tape has increased since Labour came to power two years ago.

Robert Colvile, head of small business and entrepreneurship at the CPS, said: ‘With the Budget approaching, it is critical we see policies that relieve rather than add to the burdens small businesses are facing - not least on the key issues of energy costs, business rates and employment costs.’