Small businesses facing pressures comparable to the pandemic

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

The Committee’s inquiry finds that while emergency support was rapidly mobilised during the pandemic, there is currently no equivalent, coordinated response to the cumulative pressures now facing small and medium-sized enterprises (SMEs), despite their central role in the UK economy.

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

The Committee identified several key pressures, including late payment, with evidence from Sage indicating that 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. Whilst around 38 small suppliers are estimated to close each day due to late payment practices.

The data shows that in the first half of 2024, an average of 38 stores closed each day on Great Britain’s high streets. The Committee heard that business rates, retail crime and energy costs are disproportionately affecting bricks-and-mortar businesses.

Administrative and tax burdens, the impact of recent policy changes, Energy costs and crime were also key pressures

The Committee heard repeated testimony that many firms have already passed rising costs on to consumers and are now reaching the limits of what customers can absorb. One high street café told the Committee that, compared with previous years, it would need to sell hundreds more items each month to maintain its existing position.

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

The Business and Trade Committee recommends that the Government should:

• End the late payment crisis by introducing stronger, enforceable measures to prevent persistent late payment, including mandatory transparency to change behaviour across supply chains.
• Increase SME access to public procurement by setting and delivering a clear target for at least 30 per cent of public procurement spending to reach small and medium-sized enterprises, supported by simpler bidding processes and transparent departmental reporting.
• 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.
• 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.
• Simplify and improve access to the skills system for SMEs, ensuring training and apprenticeship provision is designed around the needs of smaller employers and supports productivity growth.
• Introduce targeted energy support for SMEs, including fairer pricing, stronger protections for smaller users, and greater transparency in the energy market.
• Provide clear national leadership on business crime, strengthening policing, enforcement and trading standards capacity, and ensuring crime against businesses is treated as an economic priority.
• Equip local authorities to regenerate high streets, including improving transparency of commercial property ownership, providing national expertise, and strengthening councils’ powers and resources.
• Create a coherent national framework for SME business support, replacing the current fragmented landscape with consistent, accessible support that firms can navigate easily.
• Improve SME data and cross-Whitehall coordination, including establishing a formal mechanism for SMEs to flag conflicting regulation and ensuring policy-making is informed by accurate, up-to-date evidence.

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 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.”