A new parliamentary report on the economic conditions facing small businesses says that they are operating under pressures comparable to and in some cases exceeding those experienced during the Covid-19 pandemic. 

The report issued by the House of Commons Business and Trade Committee will also highlight that unlike then, there is no equivalent, co-ordinated response to the cumulative pressure faced by SMEs today, despite their central role in the UK economy.

SMEs account for 99.8% of all UK businesses and are the backbone of local economies and high streets. Evidence to the Committee shows that many are operating with little reserves and financial resilience and have a limited capacity to absorb future shocks. 

Late payment was identified as one of the key pressures with evidence provided by accounting group Sage showing that collectively they were £112 billion in unpaid invoices by the end of 2024. 

Additionally nearly half of all invoices are paid late, even with more standardised payment terms of 60 and 90 days in sectors such as construction meaning that in the first half of 2024, around 38 small suppliers are estimated to close each day due to endemic late payment practices.

High energy costs, retail crime and increasing business rates were also disproportionately affecting bricks-and-mortar businesses. 

The Committee heard repeated testimony that many firms had reached the limit of passing rising costs onto consumers and they could not absorb any more increases.

The Committee concluded that the current pressures on small businesses were cumulative, structural and self-reinforcing. Without action, they found that these conditions risk accelerating business closures, hollowing out high streets and undermining the Government’s growth objectives.

Rt Hon Liam Byrne MP, Chair of the Business and Trade Committee, said: “The evidence we heard during this inquiry was stark. Many small businesses are now operating under pressures comparable to those experienced during the Covid pandemic but this time without an emergency support framework in place.

“SMEs are facing late payments, rising energy costs, increasing crime, a complex tax system and barriers to growth that are compounding rather than easing. These pressures are not isolated; together they post a real risk to business viability, high streets and economic growth. 

“High streets don’t die by accident. If the government is serious about growth, it must set out a more coherent and ambitious plan for the businesses that make up so much of the UK economy.”

The report also highlighted some specific evidence to back up their claims:

Administrative and tax burdens

  • The Federation of Small Businesses estimates that tax compliance costs SMEs 242 million hours and nearly £25 billion each year.
  • HMRCs current funding settlement allows it to meet call-handling targets while still leaving 3 to 4 million calls from businesses unanswered annually. 
  • The UK’s VAT threshold is discouraging firms from expanding, while additional complexity and cliff-edges penalise growth.

Impact of recent policy changes

  • The National Hair and Beauty Federation reported that recent tax and policy changes have increased average annual costs in the sector by around £25,000 per business.
  • The British Retail Consortium estimates that the Autumn Budget added £7 billion to the cumulative cost of policy and regulation affecting retail.
  • UKHospitality told the committee that the measures contributed to 69,000 job losses, three times the rate seen in the wider economy.

Energy Costs

  • Average electricity prices in 2024 remained nearly double their level three years earlier.
  • Since 2022, over a quarter of sub-postmasters have experienced energy bill increases of more than 50%, with some reporting monthly costs doubling. 

The Business and Trade Committee made several recommendations including:-

  • Introducing stronger, enforceable measures to prevent persistent late payments including mandatory transparency to change behaviour across supply chains.
  • Increasing SME access to public procurement by setting and delivering a clear target for at least 30% of public procurement spending to reach SMEs; supported by a simpler bidding process and transparent departmental reporting.
  • Replace business rates with a fairer system that reflects a firm’s ability to pay, reduces the burden on bricks-and-mortar businesses and supports the vitality of high streets.
  • Reform the VAT system to remove growth-discouraging cliff edges, including reviewing the VAT registration threshold and reducing complexity that penalises expanding firms particularly in labour-intensive sectors.
  • Create a coherent national framework for SME business support, replacing the current fragmented landscape with consistent, accessible support that firms can navigate easily.

We’ve written about the subtle but significant changes coming in 2026 that will affect all businesses, not just SMEs.

While there might be some additional help and support coming if the government takes up any recommendations or in the Chancellor’s Spring Statement next week – the best help is the help you can give yourself. 

We offer a free initial consultation for any director or business owner who would like to review their options and find out what they can do to help their company. 

The sooner you get in touch, the more choices you’ll generally have and more time for them to take effect and get your business to where you want it to be.