Small firms ‘facing pressures comparable to the pandemic’ which pose a ‘risk to business viability’, MPs warn

By
Dan Martin
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Late payment, high street costs, tax burdens, energy prices and crime are among the major pressures faced by small businesses that the government needs to address, an influential group of MPs have said.

Small businesses are now operating under pressures comparable to, and in some cases exceeding, those experienced during the Covid-19 pandemic, the major report by the House of Commons Business and Trade Committee said.

Although emergency support was rapidly mobilised during the lockdowns, the MPs said there is currently no equivalent to tackle the major challenges that entrepreneurs are having to tackle.

The report follows an inquiry which heard from small businesses and industry experts. The committee said it heard “repeated testimony” that many firms have been forced to pass rising costs on to consumers and are now “reaching the limits of what customers can absorb”.

A high street café told the MPs that, compared with previous years, it would need to sell hundreds more items each month simply to maintain its existing position.

Without government action, the committee warned that the current conditions “risk accelerating business closures, hollowing out high streets and undermining the government’s growth objectives”.

The committee highlighted the following key pressures small businesses are facing:

Late payment

  • Sage research found UK small businesses were owed £112 billion in unpaid invoices by the end of 2024.
  • Nearly half of all invoices are paid late, even with payment terms of 60 to 90 days now routine in sectors such as construction.
  • Around 38 small suppliers are estimated to close each day as a result of late payment practices.

High street decline

  • Data shows that in the first half of 2024, an average of 38 high street stores.
  • The committee heard that business rates, retail crime and energy costs are disproportionately affecting bricks-and-mortar businesses.

Administrative and tax burdens

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

Crime

  • Retail crime is estimated to cost businesses £4.2 billion a year, including prevention costs.
  • In convenience stores, crime adds the equivalent of 10p to every transaction.
  • Evidence points to inconsistent policing responses and under-resourced enforcement.

The Business and Trade Committee made the following recommendations for government action:

  1. Late payment: Introduce stronger, enforceable measures to prevent persistent late payment, including mandatory transparency to change behaviour across supply chains.
  2. SME access to public procurement: Set and delivering a target for at least 30% of public procurement spending to reach small and medium-sized enterprises, supported by simpler bidding processes and transparent departmental reporting.
  3. VAT: Remove growth-discouraging cliff edges, including reviewing the VAT registration threshold and reducing complexity that penalises expanding firms, particularly in labour-intensive sectors.
  4. Business rates: Introduce 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.
  5. Skills: Simplify and improve access for SMEs, ensuring training and apprenticeship provision is designed around the needs of smaller employers and supports productivity growth.
  6. Energy: Introduce targeted support for SMEs, including fairer pricing, stronger protections for smaller users, and greater transparency in the energy market.
  7. Business crime: Provide clear national leadership, strengthening policing, enforcement and trading standards capacity, and ensuring crime against businesses is treated as an economic priority.
  8. High streets: Equip local authorities to regenerate high streets, including improving transparency of commercial property ownership, providing national expertise, and strengthening councils’ powers and resources.
  9. Small business support: Create a coherent national framework, replacing the current fragmented landscape with consistent, accessible support that firms can navigate easily.
  10. SME data and cross-Whitehall coordination: Establishing a formal mechanism for SMEs to flag conflicting regulation and ensuring policy-making is informed by accurate, up-to-date evidence.

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 pose a real risk to business viability, high streets and economic growth.

“High streets do not 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.”