The CBI Economics Report: A Methodological Deconstruction

The Report's Context

In February 2025, the British Hair Consortium (BHC) - a coalition including the Hair & Barber Council - published "Securing the Future of UK Hairdressing & Beauty," a report by CBI Economics advocating for VAT reform.

H&BC's press release announcing the report stated:

This is significant. The report is not independent economic analysis that happened to reach conclusions favorable to H&BC. Rather, H&BC acknowledges being "an integral part of the drafting" - suggesting this is commissioned advocacy presented as economic research.

The press release also introduces new financial claims not fully explained in the report itself:

• "A split-rate VAT model could be cost-neutral, or even positive with a gain of £0.75bn by 2030"
• "The gain could rise to £1.5bn if registration levels are restored to their historic levels"

These figures (£0.75bn gain, potentially £1.5bn) appear to be additional projections based on assumptions about preventing de-registrations and increasing registrations. The methodology for these projections is not disclosed.

The report makes dramatic claims about sector collapse and enormous tax losses. Its foreword, signed by Gareth Penn as "Chief Executive, Hair & Barber Council," presents these as established facts requiring urgent government intervention.

This analysis examines whether the report's major claims withstand scrutiny against official government data.

Gareth Penn's Foreword: The Opening Statement

Penn's foreword presents a series of stark claims that frame the entire report. Let's examine each:

Penn signs as "Chief Executive, Hair & Barber Council." The 1964 Act creates a "Hairdressing Council" with a "Registrar." The title "Chief Executive" suggests corporate executive authority rather than statutory officer of a voluntary register.

Every major statistical claim in Penn's foreword appears in our detailed analysis to be either mathematically impossible or based on misleading presentation of data.

Claim 1: The £2.4 Billion VAT Loss

The report's central claim is that VAT system flaws have resulted in "an estimated loss of £2.4 billion in VAT receipts alone."

This figure appears designed to shock - billions in lost revenue creates urgency for intervention. So how was it calculated?

Attempting to Verify

Using HMRC data on salon closures and VAT de-registrations, we can check whether this figure is plausible:

The Response When Challenged

When this calculation was presented to CBI Economics with a request to "clarify the time period and methodology behind the £2.4 billion VAT loss," their response was notable:

When a major economic consultancy is challenged on a £2.4bn figure and offers only a phone conversation rather than written methodology, it raises questions about whether the figure can be defended in writing.

Claim 2: The 93% Employment Fall

The report forecasts: "Employment in the sector will fall by 93%, meaning that the Government's Worker Rights Bill will have little impact."

This claim has been analysed in detail elsewhere, but briefly:

The report measures the decline in traditional employees (from 86,800 to projected 6,468) and presents this as "employment fall." Their own Figure 5 shows total workforce at 231,000 in 2030, barely changed from 232,700 in 2024.

HMRC data shows total workforce at 398,000 (PAYE + self-employed), having grown 2.1% from 2018-19 to 2022-23.

Claim 3: Zero Apprenticeships by 2027

The foreword states: "By 2027, there will be no apprenticeships left in the sector, resulting in a £3.2 billion loss in lifetime productivity benefits."

This is based on projecting a declining trend line to zero. However:

• Apprenticeship starts in 2023-24: 6,670 (recovered to 2019 levels)
• 2024-25: 6,350 (slight decline from recovery peak)
• 2025-26 Q1-Q2: 2,440 (partial year data)

Since 2025-26 already shows 2,440 starts in partial data, the "zero by 2027" claim appears to be a projection presented as inevitable outcome rather than a realistic forecast.

Claim 4: The £14.4 Billion Productivity Loss

The report claims "£3.2 billion loss in lifetime productivity benefits, potentially rising to £14.4 billion by 2030."

When challenged to provide "details on the assumptions driving this projection, particularly in relation to workforce trends, economic inflation, and the potential long-term impacts on productivity," CBI Economics again offered only a phone call.

Key questions remain unanswered:

• Methodology: How is "lifetime productivity benefit" calculated?
• Baseline: What's the comparison point for measuring "loss"?
• Cumulative vs Annual: Is £14.4bn cumulative over years or annual loss in 2030?
• Assumptions: What workforce trends, inflation rates, and productivity multipliers are used?
• Verification: Can this be reconciled with official productivity and earnings data?

Without methodology, these figures cannot be verified or challenged. They appear designed to add additional billions to the crisis narrative.

Claim 5: The Hidden Economy

The report references "a rising hidden economy" that will "further deprive the Exchequer of vital employment-related tax revenues."

When challenged to "detail how this was estimated and reconciled with HMRC data," CBI Economics offered a phone call.

The hidden economy is, by definition, unmeasured. Any estimate requires explaining:

• What methodology was used to estimate unmeasured activity
• What evidence suggests it is "rising"
• How much tax revenue this represents
• How this reconciles with official employment and VAT data

Adding unmeasured tax losses from unmeasured economic activity is convenient for inflating crisis figures, but impossible to verify.

Sample Size and Representativeness

The report's findings rely on a survey of 542 respondents. For context:

When challenged on "what measures were taken to ensure this sample is representative of the 48,000 UK salons," CBI Economics offered a phone call.

Questions about sample representativeness include:

• Self-selection bias: Did those responding have stronger views about VAT than non-respondents?
• Geographic distribution: Does the sample match the regional distribution of salons?
• Business size: Are different size categories proportionally represented?
• Employment models: Are traditional employed salons vs self-employed models proportionally represented?

A 1.13% sample can be representative if properly stratified, but the methodology for ensuring representativeness hasn't been disclosed.

The VAT Reform Proposal: Who Actually Pays?

The report proposes "split-rate VAT" with services at 10% and goods at 20%. Penn's foreword states: "To be clear, this reform is not a tax cut."

However:

• Current VAT rate on salon services: 20%
• Proposed VAT rate on salon services: 10%
• This is, definitionally, a tax rate cut

The report estimates this would cost £167 million annually in reduced VAT receipts. When challenged on "how is it suggested this should be funded," CBI Economics offered a phone call.

The Hidden Cost: Threshold Reduction

The report's proposal includes a critical element that appears designed to make the rate cut "revenue neutral": lowering the VAT registration threshold from £90,000 to £30,000.

The Arithmetic of "Revenue Neutrality"

The proposal is structured so that approximately 30% of salons (already VAT registered, larger businesses) get a rate cut funded by approximately 70% of salons (currently exempt, smaller businesses) being forced into VAT registration.

Impact on Small Businesses

For a salon currently turning over £40,000-£89,000 (below current threshold, above proposed threshold):

Aspect	Current (£90k threshold)	Proposed (£30k threshold)
VAT Registration	Not required	Mandatory
VAT Added to Prices	No VAT charged	10% VAT added
Price Competitiveness	10-20% price advantage vs VAT-registered competitors	Advantage eliminated
Administrative Burden	No VAT returns	Quarterly VAT returns required
Cash Flow	No VAT payment delay	Must collect and remit VAT quarterly

Small businesses would face:

• Price increase requirement: Must add 10% to prices or absorb it in margins
• Competitive disadvantage: Lose current price advantage over larger salons
• Administrative costs: VAT registration, accounting, quarterly returns
• Cash flow impact: Collecting VAT from customers, holding it, remitting quarterly
• Compliance risk: Penalties for late filing or errors

Who Benefits From This Reform?

When asked "how is it suggested this should be funded," CBI Economics offered a phone call rather than stating explicitly: "by forcing small businesses to pay VAT so we can reduce it for large businesses."

Alternative Approaches Not Considered

Other potential VAT reforms that wouldn't transfer costs to small businesses:

• Raise the threshold: Increase £90k to £120k+, giving more businesses VAT exemption
• Graduated approach: Sliding scale between threshold and full rate
• Input VAT on labour: Allow VAT-registered businesses to reclaim VAT on wages (like other inputs)
• Sector-specific threshold: Higher threshold for labour-intensive services

These alternatives would help small businesses rather than using them to fund rate cuts for larger businesses. The report doesn't appear to analyse alternatives that don't benefit its commissioning organizations.

Mandatory Registration Advocacy

Penn's foreword advocates for "a mandatory register of all hairdressing professionals," stating: "Without a register, VAT avoidance and disguised employment will continue unchecked."

However, the Hairdressers (Registration) Act 1964 creates only a voluntary register. Section 2 states registration is for persons "who apply in the prescribed manner to be so registered."

Mandatory registration would require new primary legislation. Using a report on VAT reform to advocate for fundamentally changing the statutory basis of the Hair & Barber Council raises questions about the report's objectives.

The Pattern Across Claims

Claim	Report Says	Verification Shows	When Challenged
VAT Loss	£2.4 billion	£22.7 million (HMRC data)	Phone call offered
Employment Fall	93% decline	Total workforce stable	N/A (in report)
Apprenticeships	Zero by 2027	Projection, not forecast	N/A (in report)
Productivity Loss	£14.4 billion	Methodology undefined	Phone call offered
Hidden Economy	Rising tax losses	Estimation method unknown	Phone call offered
Sample Size	542 respondents	Representativeness unverified	Phone call offered

Every major claim either fails verification against official data or lacks disclosed methodology. When challenged in writing, CBI Economics declined to defend calculations in writing.

What This Means for Policy

The report is being used to advocate for significant policy changes:

• Split-rate VAT (10% on services)
• Cost: £167 million annually
• Mandatory professional registration
• Presented as urgent crisis requiring immediate intervention

When policy advocacy is built on statistics that don't withstand scrutiny, it raises fundamental questions:

• Are policymakers receiving accurate information about sector challenges?
• Is the case for intervention being overstated?
• Are legitimate sector issues being undermined by exaggerated claims?
• Who benefits if these policies are enacted based on incorrect analysis?

The Real Sector Challenges

This analysis doesn't claim the sector faces no challenges. Legitimate concerns exist:

• VAT threshold effects: Creating bunching and distortions
• Disguised employment: Tax compliance issues in chair rental models
• Business costs: Rising rent, rates, utilities affecting viability
• Skills development: Training pathways and apprenticeship quality
• Employment model shifts: Implications for worker protections

These deserve serious policy discussion. They don't require fabricated crisis statistics to warrant attention.

When economic analysis is commissioned by organisations with clear policy objectives (VAT cuts, mandatory registration), and that analysis presents unverifiable claims that conveniently support those objectives, it undermines the credibility of legitimate sector advocacy.