Every time the OBR releases a new forecast, the headlines scream for a day, and then most business owners quite sensibly get back to running their business.
The problem is, buried inside those dry tables and charts are assumptions that directly affect your prices, your wages, your tax bill and your long-term plans.
So I’ve dug through the latest OBR forecast so you don’t have to, and here’s what it actually means if you’re running a small or owner-managed business in the UK.
The big picture: slow and steady, not boom and bust
The OBR is basically saying:
- The UK will grow, but gently, think around 1.5% a year, not a roaring boom.
- Productivity (how much value we get from each hour worked) is expected to stay weak, at about 1% a year.
In plain English: the economy is “muddling through”.
That means:
- Don’t expect a rising tide to magically lift your business.
- The businesses that do well over the next few years will be the ones that take control of their own numbers, not the ones waiting for a miracle Budget or a sudden boom.
If you’ve felt like you’re working harder just to stand still, this is exactly what the OBR is describing: a low-growth, high-effort environment.
Costs are sticky: wages and inflation still biting
The OBR now expects both wages and inflation to be higher than they previously thought.
That doesn’t mean we’re going back to 10% inflation, but it does mean:
- Staff will continue to expect decent pay rises.
- Your suppliers’ prices are unlikely to drop back to 2019 levels.
- Your own overheads (energy, insurance, rent) will stay under pressure.
If your turnover is flat and your costs keep nudging up, there’s only one place that squeeze can show up: your profit margin.
This is why so many good businesses feel “busy but broke”. The macro picture is telling you: if you don’t review your prices and efficiency, the gap will continue to close.
The tax take is going up (even if the rates don’t)
One of the clearest messages in the forecast is this:
The overall tax burden is heading to a record high, around 38% of GDP by 2030–31.
Most of that increase doesn’t come from big headline rate rises. It comes from:
- Frozen income tax and NI thresholds dragging more of your income into higher bands.
- Higher taxes on dividends, property and savings income.
- National Insurance changes on things like salary-sacrifice pensions in the later years.
So even if your profit only rises modestly, your effective tax rate can rise quite a lot.
For owner-managed companies, that’s a double whammy:
- The company is paying more tax.
- You personally are paying more tax on the money you take out (salary, dividends, property income, savings).
This is why tax planning is no longer a “nice to have”. In a high-tax, low-growth world, it can be the difference between a business that throws off cash and one that constantly feels tight.
Borrowing and investment: money is no longer cheap
The OBR also assumes that the cost of capital, in simple terms, what it costs you to borrow or invest, stays higher than it was in the 2010s.
That means:
- Loans and overdrafts are unlikely to go back to “almost free” money.
- The bar for investing in new kit, vans, software or premises is higher, the numbers have to stack up properly.
- Government is also quietly trimming back some capital allowances, which reduces the tax relief on certain investments.
So impulsive, “we’ve always done it this way” investment decisions are more dangerous now. You want:
- Clear payback calculations.
- A proper look at cashflow, not just profit.
- And a good accountant (hello 👋) to run the scenarios with you.
What this means for your business, in practical terms
Let’s step away from the economics and talk about you.
Here’s how I’d translate the OBR forecast into day-to-day action points for an owner-managed business doing, say, £500k–£2m turnover.
1. You can’t rely on growth to save you
If the wider economy is only growing gently, you can’t “hope” that extra sales volume will fix thin margins or poor cash control.
You have to:
- Know which products/services actually make you money.
- Be prepared to drop low-margin work.
- Focus on your best customers, not every customer.
2. You must actively protect your margins
With wages and costs rising faster than productivity:
- Review your pricing at least annually (ideally more often).
- Use proper job costing or margin reporting, not just gut feel.
- Look for process improvements and automation, especially with repetitive admin.
If your gross margin has quietly slipped by 3–5 points over the last few years, that alone could be thousands of pounds a month disappearing.
3. Tax planning moves from “optional” to “essential”
With the tax burden heading to record levels, I’d expect:
- More stealth measures like frozen thresholds and small tweaks, rather than big, flashy changes.
- More attention on business owners’ personal income, dividends and property.
Now is the time to:
- Review your salary vs dividend mix.
- Check if you’re using pensions, ISAs and family allowances properly.
- Look at your company structure, is everything in the right entity for the next 5–10 years?
4. Compliance risk is rising
HMRC needs to collect more tax in a tougher environment. That usually means:
- More enquiries.
- Less tolerance for sloppy record-keeping.
- A crackdown on “creative” arrangements being pushed by unregulated advisers.
If your bookkeeping, VAT, CIS or payroll systems are messy, this is one area you really don’t want to gamble on.
What I’d be doing now if I were you
If you’re an owner-manager reading this, here’s a simple three-step plan to turn the OBR forecast into something useful:
- Get clarity on your current numbers
- What’s your real gross margin?
- What’s your break-even point?
- How much free cash does the business actually generate each month?
- Run a “what if the OBR is right?” scenario
- Assume modest sales growth.
- Build in higher wages and overheads.
- Build in a higher effective tax take.
- See what happens to your profit and cash in 2–3 years.
- Make 3–5 concrete decisions off the back of that
- Pricing changes?
- Dropping unprofitable lines?
- Tightening spend?
- Refinancing debt?
- Tweaking how you pay yourself?
This is the sort of work we do with clients all the time, and it’s far less scary when you look at it before it becomes urgent.
How we can help
At MDH we’re not here to give you an economics lecture. We’re here to translate things like the OBR forecast into “What does this mean for my business, my tax bill and my life?”
If you’d like to:
- See how these assumptions play out in your numbers, and
- Get a clear, practical plan for the next 2–3 years
Ask us about an “Economic Reality Check” session. Email us on info@mdh.me.uk
We’ll sit down with your current figures, overlay the OBR assumptions, and show you, in plain English, what needs to change so your business can still grow and throw off cash in a higher-tax, slower-growth world.
