The UK’s economic recovery has hit yet another wall, with fresh data showing the economy effectively flatlining in early 2026. Free-market think tank the Institute of Economic Affairs (IEA) is pointing the finger squarely at government tax hikes and a wave of new regulations.
In a scathing response to the latest GDP figures released this week, the IEA declared that Britain is being “taxed and regulated to a standstill.”
The comments come amid mounting evidence of sluggish growth, even before global energy markets were rocked by geopolitical tensions involving Iran and the US.
On a three-month basis, growth edged up slightly to 0.2%, but analysts describe the pace as “feeble.” When adjusted for population growth, quarterly GDP per head was likely close to zero, a sign of stagnating living standards.
“The latest GDP data show that the UK economy is being taxed and regulated to a standstill,” said Julian Jessop, Economics Fellow at the IEA. “The ‘steady as she goes’ Spring Statement now looks even more like a missed opportunity to change course.”
He noted that the figures predate the recent shock from the Iran-related conflict, which has sent energy prices surging and revived fears of stagflation, the toxic combination of stagnant growth and rising inflation.
While weak activity might give the Bank of England some leeway to look through temporary energy price spikes, the broader confidence hit could prove more lasting.
A self-inflicted wound
Lord Frost, the IEA’s Director General and a former chief Brexit negotiator, went further, framing the slowdown as largely self-inflicted.
“These figures are the predictable consequence of Government action that has piled costs onto businesses through the National Insurance rise and a raft of new employment regulations, while offering nothing credible in return by way of supply-side reform,” Frost said.
He argued that economic expansion doesn’t happen simply because politicians declare it a priority.
“An economy does not grow because ministers will it to – it grows when businesses have the confidence and capacity to invest,” Frost said. “The Chancellor cannot keep blaming global headwinds when the damage is largely self-inflicted. If this Government is serious about growth, it needs to stop treating it as a slogan and start making the policy choices that actually deliver it.”
The critique echoes a long-standing IEA position that the UK’s tax burden, which has climbed to levels not seen in generations following recent budgets, combined with tightening labour rules and other red tape, is choking private-sector dynamism.
Business groups have repeatedly warned that higher employer National Insurance contributions and new workplace mandates are deterring hiring and investment at a time when the economy most needs them.
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