Profitability in Britain falls to lowest level since 1982 under Labour
Surging employment costs under Labour have punched the biggest hole in corporate profits in more than four decades.
Profit margins at non-financial firms this year fell to their lowest level since 1982, according to analysis by the Bank of America (BoA). Profits across the entire economy are now at their weakest level since before the financial crisis.
The BoA analysis – which looked at how much profit companies made on their goods and services after workers had been paid – showed that companies were hit by rising raw material costs as well as higher labour costs following the Chancellor’s £25bn rise in employers’ National Insurance contributions.
Inflation-busting increases in the minimum wage also dealt a significant blow to profitability.
Sonali Punhani, of BoA, said the slump in profitability at non-financial firms showed the “real economy” was suffering under Labour. This measure excluded businesses like banks and stock brokers, where profits can be influenced by movements in global financial markets.
Ms Punhani said: “The real economy is still reeling from the decisions that were made in the previous Budget.
“We did a whole study on corporate vulnerability in the UK and profit margins in the UK are the lowest since 1982 because of all these labour costs and the fact that demand on the other side has not been strong enough for firms to rebuild their margins.”
She added: “It’s going to remain an issue until demand recovers.”
In 2025, profit margins at non-financial corporations in the UK fell below 18pc, BoA said. Wider profitability slumped to the lowest since the start of 2007.
The BoA findings are in sharp contrast to the wake of the pandemic when companies were accused of profiteering through “greedflation”.
The economy grew by just 0.1pc in the three months to September and economists expect it to flatline in the wake of Rachel Reeves’s second Budget, where she raised taxes by a further £30bn.
The Bank of England warned in December that many firms “continue to report squeezed profit margins and ongoing efficiency initiatives as mitigation”.
Martin Beck, of WPI Strategy, said Britain now risked slipping into a doom loop of squeezed profits, lower investment and sluggish growth as he compared the current situation to the turmoil seen during the 1970s.
Mr Beck said: “A sustained fall in the profit share of GDP matters because profits fund investment, innovation and make companies more resilient.
“The UK suffered these risks clearly in the 1970s, when profits fell to record lows and business investment, productivity and competitiveness all suffered.”