Story Highlight
– Small business confidence remains negative for eight quarters.
– 87% of firms report rising costs; 26% see double-digit increases.
– More firms expect revenue drops than increases; 54% report losses.
– Hiring plans bleak, with more cuts than additions in staff.
– FSB urges government action on costs and late payments.
Full Story
Confidence among small businesses is beginning to recover from historically low levels, but the Federation of Small Businesses (FSB) warns that without government intervention, emerging cost pressures could reverse this trend.
According to the FSB’s Small Business Index (SBI), which measures the optimism of small enterprises, the index recorded -53 in the first quarter of 2026. This marks an 18-point increase from the previous quarter’s record low of -71, representing the lowest confidence outside of the pandemic era. Despite this increase, small business confidence has remained negative for eight consecutive quarters.
As April begins, businesses are facing a significant financial burden, dubbed the ‘April costs’ crunch. This situation is exacerbated by impending rises in business rates, energy bill standing charges, an increase in the National Living Wage, and expanded Statutory Sick Pay (SSP) regulations. Additionally, compliance with Making Tax Digital will become mandatory, and an increase in dividend tax will reduce the take-home pay for company directors.
The financial strain is evident, with 87% of businesses reporting climbing costs compared to last year. More than a quarter (26%) are experiencing double-digit increases. Furthermore, the ongoing crisis in the Middle East is expected to add to these financial pressures, compounding the challenges already faced by small firms.
Taxation has been identified as the primary contributor to cost increases for four consecutive quarters, affecting 58% of businesses. Labour and utility costs follow closely, impacting 56% and 53% of firms, respectively.
Concurrent with rising costs, small businesses are seeing a decline in income. Over half (54%) have reported a decrease in revenue over the last three months, while just 24% have noted an increase. Moreover, 45% anticipate further declines in the upcoming months.
This economic situation is affecting employment strategies as well. More firms are inclined to reduce staff (21%) than to hire new employees (8%). In the last quarter, 23% of businesses have cut back on personnel, compared to only 8% that increased their workforce.
Expectations for growth over the next year remain pessimistic, with a higher proportion of small businesses forecasting contraction, closure, or sale (30%) compared to those anticipating expansion (22%). Notably, firms with 10 to 49 employees are somewhat more optimistic about growth prospects than their smaller counterparts, where the majority expect contraction.
The issue of late payments persists, affecting 69% of small businesses. However, recent government proposals, influenced by FSB’s advocacy, promise reforms aimed at addressing this issue. The FSB urges that the forthcoming King’s Speech on May 13 should include provisions for tackling late payments to support small enterprises during this challenging time.
The FSB has outlined specific recommendations for the government, which include:
1. Lowering business rates through the powers already available to alleviate costs within the retail, hospitality, and leisure sectors.
2. Extending similar benefits received by consumers to small businesses, such as removing Renewable Obligation costs from bills to counteract energy cost increases.
3. Introducing a rebate for small employers concerning Statutory Sick Pay (SSP).
4. Committing to freeze dividend taxes for the remainder of the parliamentary term.
Tina McKenzie, policy chair of the FSB, commented, “Sentiment among the community remains low, driven by mounting costs stemming from policy decisions made by ministers. The outlook for small business growth is bleak, and you can’t get growth in the economy relying just on the UK’s large corporate firms who are feeling relieved after the last Budget.
“Small businesses need a cushion to absorb the costs kicking in over the course of the year, because without changes to business rates, help with energy costs, an SSP rebate and a delay in dividend tax increases, it leaves them in a very vulnerable place. If the Middle East crisis continues to escalate then the Government must keep an open mind about creating targeted business support for those most in need.
“The numbers tell a brutal story, and behind every one of these numbers are business owners who went to bed last night wondering if and how they can make it work. We should be encouraging more people to take the leap and start their own business, while existing businesses want to hire, invest, and grow. But they can’t do any of that when they’re busy worrying about bills.
“The next King’s Speech must deliver on the promise to stop large firms paying small businesses late. The UK is unique in being a place where late payment has been considered as acceptable, and the toughest legislation in the G7 cannot come soon enough.
“The Government must tackle rising costs head-on and give firms the support they need to take on staff and plan with confidence. Without that, these early signs of recovery risk slipping away before they’ve had a chance to take hold.”
