If the UK wants stronger communities, more skilled jobs and a more resilient economy, it needs to make it easier for businesses to manufacture, employ people and invest here.
For many small and medium-sized enterprises (SMEs), however, the combined cost of running a business is becoming an increasingly serious challenge. Rising employment costs, energy bills, business rates, taxation and ongoing uncertainty are putting pressure on businesses that play a vital role in the UK economy.
For the fashion, textile and clothing manufacturing sector, the consequences are particularly significant. These businesses support skilled workers, local suppliers, designers, machinists, pattern cutters, technicians and manufacturers across the country. They help turn ideas into products while providing employment and sustaining valuable skills within local communities.
Yet if the cost of manufacturing in Britain makes it increasingly difficult to compete with overseas production, what incentive is there for businesses to invest in UK manufacturing?
This is the question government needs to address. Supporting fair wages, responsible employment and environmental standards must go hand in hand with creating an environment in which British businesses can afford to operate, grow and compete.
The rising cost of employing people
From April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour. Fair pay is essential, but employers must also consider National Insurance contributions, workplace pensions, holiday pay, training and other employment-related costs when calculating the true cost of taking on staff.
Employer National Insurance contributions increased from 13.8% to 15% in April 2025, while the secondary threshold fell to £5,000 a year. Although eligible employers can access the Employment Allowance, the impact of these changes varies depending on the size and circumstances of each business.
For labour-intensive manufacturers, these costs can be particularly difficult to absorb. Garment production relies on skilled people at every stage, from pattern development and cutting to sewing, finishing and quality control. Smaller factories may have limited opportunities to automate processes or reduce labour requirements without significant investment.
The issue is not whether workers should be paid fairly. They should. The question is how the tax and employment system can support fair wages while allowing businesses to recruit, train and retain the people they need.
When employers cannot afford to recruit, vacancies may remain unfilled. When training budgets are cut, the development of future skilled workers suffers. And when businesses are forced to reduce their workforce, valuable manufacturing knowledge and capacity can be lost.
Government should therefore look closely at the combined cost of employment for SMEs, particularly those creating entry-level opportunities, apprenticeships and skilled manufacturing jobs. Targeted support for employers and practical investment in training could help businesses expand their workforces without compromising workers’ pay.
Energy costs are putting manufacturers under pressure
Energy is another major factor affecting the competitiveness of British industry.
In June 2025, the House of Commons Business and Trade Committee warned that high industrial energy prices were undermining UK competitiveness and potentially holding back investment. The government’s subsequent Modern Industrial Strategy recognised these concerns and included plans to reduce electricity costs for eligible energy-intensive businesses through the British Industrial Competitiveness Scheme.
This is an important step, but it raises a further question: will smaller manufacturers receive the support they need, or will many remain outside the eligibility criteria?
A small clothing factory may not use as much electricity as a steelworks, but its machinery, lighting, heating, ventilation and finishing equipment all require power. Commercial standing charges and energy contracts can add further pressure, particularly for businesses with limited negotiating power.
For manufacturers operating on tight margins, energy is an essential production cost.
Support for energy-intensive industries is welcome, but a wider manufacturing strategy must also recognise the needs of smaller businesses and the supply chains that support larger industries. Affordable electricity, faster grid connections, energy-efficiency improvements and access to finance for equipment upgrades should all form part of the discussion.
British manufacturers need a realistic opportunity to invest in productive equipment, improve efficiency and compete for orders without facing an unnecessary structural disadvantage.
What are SMEs saying about the cost of doing business?
The government’s 2025 Small Business Survey highlights the scale of the challenge facing employers.
According to the survey, SME employers identified the following as obstacles to business growth:
- 67% cited taxation and business taxes, including VAT, PAYE, National Insurance and business rates.
- 52% cited energy prices.
- 38% cited the National Living Wage as a major obstacle.
The findings were even more pronounced among manufacturing SMEs. Within this group, 76% cited taxation as an obstacle to growth, while 74% identified energy prices.
These figures underline the importance of looking at the combined effect of operating costs rather than considering each issue in isolation. A business may be able to absorb an increase in one area, but when employment, energy, premises and other costs rise together, the cumulative impact can restrict investment and growth.
Source: Longitudinal Small Business Survey 2025 – SME Employers.
How does the UK compare with Europe?
International comparisons can help explain the pressures facing British manufacturers, but minimum wage figures alone do not determine where it is cheapest to produce goods.
Across Europe, minimum wages, employer social contributions, energy prices, taxation and working arrangements differ considerably. The overall cost of manufacturing also depends on productivity, premises, transport, financing, skills and access to infrastructure.
Eurostat’s minimum wage statistics provide a useful starting point for comparing European countries. However, figures must be interpreted carefully, particularly where countries make different numbers of annual salary payments or use different methods of setting minimum wages.
The wider question is whether British manufacturers face costs that make domestic production unnecessarily difficult, and whether those costs are balanced by corresponding benefits in productivity, infrastructure, skills and public services.
The answer cannot simply be to reduce wages or weaken employment protections. That would shift the burden of competitiveness onto workers and their families.
Instead, Britain should aim to compete through productivity, innovation, design, skilled labour, reliable infrastructure and a business environment that encourages long-term investment. Where avoidable costs or unnecessary uncertainty are holding businesses back, those barriers should be reviewed.
The purpose of international comparison is not to assume that another country has the perfect model. It is to understand where the UK can improve while maintaining the employment standards and protections that matter to society.
Sources: Eurostat minimum wage statistics and UK minimum wage rates for 2026.
The hidden cost of losing British manufacturing
When a UK factory closes, the immediate impact is often measured in lost jobs and reduced production. The wider consequences can be much harder to quantify.
A closure can mean fewer apprenticeship opportunities, reduced demand for local suppliers and the loss of specialist skills that have taken years to develop. Designers may struggle to find nearby production facilities, while emerging brands can lose access to the smaller manufacturing runs they need to test new products.
Manufacturing is not simply a collection of individual factories. It is a network of relationships between suppliers, technical specialists, manufacturers, brands, educators and customers. Once that network breaks down, rebuilding it can take years.
Domestic manufacturing can also offer shorter supply chains and closer relationships between production teams and the businesses selling the finished products. Depending on the product and production method, this can support better responsiveness, traceability and quality control.
UK production is not automatically cheaper or more environmentally sustainable in every case. International trade remains essential, providing access to materials, markets and products that cannot all be sourced domestically.
However, excessive reliance on overseas production can leave businesses vulnerable when international supply chains are disrupted and domestic alternatives are no longer available.
A resilient economy needs international trade alongside a viable domestic manufacturing base.
Public procurement could help create opportunities for UK manufacturers
One way to support domestic manufacturing is through public procurement.
Public bodies purchase substantial quantities of clothing, uniforms, textiles and other manufactured goods. These contracts can provide valuable opportunities for UK factories, helping them secure orders, retain workers and invest in production capacity.
However, smaller manufacturers often face significant barriers when competing for large contracts. Tendering requirements, contract sizes, administrative demands and the need to demonstrate substantial production capacity can make it difficult for individual SMEs to compete with larger suppliers.
Government should consider how procurement processes can become more accessible while continuing to meet legal requirements and international trade commitments.
Appropriate consideration of quality, durability, supply chain resilience, environmental performance, labour standards and whole-life value can help ensure that purchasing decisions look beyond the initial price.
Longer-term contracts, clearer demand forecasts and proportionate tendering requirements could also give manufacturers greater confidence to invest in equipment, skills and additional staff.
Collaborative approaches that allow smaller factories to combine their capabilities may provide another route into larger contracts, enabling SMEs to compete for opportunities that would otherwise be beyond their individual reach.
Public procurement should not guarantee contracts to domestic businesses regardless of cost or capability. It should, however, provide a fair and practical opportunity for capable UK manufacturers to compete.
Why SMEs matter to the wider economy
A healthy economy depends on more than the number of businesses registered or the value of goods sold. It also depends on whether businesses can remain viable, whether people can access productive employment and whether valuable skills are passed on to future generations.
SMEs are central to this picture. They employ people, supply larger organisations, serve local markets and create opportunities for workers to develop specialist skills.
In fashion and textiles, smaller manufacturers often provide the technical expertise and production flexibility that connect creative ideas with finished products. Their contribution extends beyond their own turnover to the suppliers, service providers and communities that depend on them.
This does not mean that government should guarantee the survival of every business regardless of its commercial viability. Businesses must remain competitive, respond to customers and continue to innovate.
However, there is a clear distinction between a business struggling because its products no longer meet market demand and a viable manufacturer being prevented from investing or employing people because the combined cost and complexity of operating have become disproportionate.
Government should be willing to examine that distinction and act where the evidence supports reform.
The success of economic policy should ultimately be measured by its results: investment, employment, production, productivity and sustainable business growth.
Britain must make domestic manufacturing commercially viable
The cost of doing business is not a single issue that can be resolved through one policy announcement. It is the combined effect of employment costs, taxation, energy, premises, regulation and the wider conditions in which businesses operate.
If Britain wants stronger domestic supply chains, more skilled jobs and thriving manufacturing communities, it must ensure that producing goods in the UK remains a commercially realistic choice.
That means taking SMEs seriously, examining the combined impact of business costs and learning from competing economies. It also means ensuring that policies designed to support growth translate into practical benefits for businesses on the ground.
For the fashion, textile and clothing manufacturing sector, the stakes are clear: the future of factories, technical skills, British production and the businesses that connect creativity with manufacturing.
The wider principle applies across the economy. Businesses that employ people, develop skills and manufacture goods in Britain need an environment that allows them to compete, adapt and grow.
If the UK is serious about rebuilding its manufacturing base, it must make it possible for British businesses not only to survive, but to invest in the future.