Small businesses across the UK are facing growing financial pressures, following a series of cost increases and reduced government support during the first year of the new administration, Simply Business said.
According to its latest SME Insights Report, the company said that a combination of higher employer National Insurance contributions, an increase to the national minimum wage and reduced business rates relief for retail, hospitality and leisure sectors has led to tighter margins for many firms.
These developments come amid continued economic uncertainty, with global instability and changes in international trade policy adding further strain.
The UK economy continues to experience weak growth, with high inflation, low levels of investment, and an unclear policy environment contributing to the slowdown. Business confidence has also declined. In 2023, just over a quarter of small and medium-sized enterprises (SMEs) expected the economy to deteriorate over the coming year. By 2025, that figure had risen to 50%.
Economists have pointed to digital tools and technologies, including artificial intelligence, as potential drivers of improved productivity. However, investment in such areas remains limited, with many SMEs opting to defer spending due to rising costs and changing consumer behaviour.
According to recent findings, the number of businesses delaying investment in equipment and tools has nearly doubled – from 23% in 2023 to 42% in 2025. Cost pressures are also affecting workforce decisions.
Around 24% of businesses have paused hiring, 28% are struggling to cover higher utility bills and 16% have reduced employee hours. In response to increased labour costs, 40% of business owners are considering raising prices.
Late payments remain a significant issue, despite the government introducing the Fair Payment Code in December 2024. Since its launch, 23% of small businesses report no change in payment practices, while 12% said delays have worsened. Only 3% have seen improvements.
Outstanding invoices continue to impact cash flow, the report said. Around 23% of businesses are owed up to £5,000, with smaller percentages reporting higher levels of unpaid bills. Some 2% of firms are owed more than £20,000.
Meanwhile, high street businesses continue to face challenges linked to operational costs, shifting consumer behaviour, and growing online competition. Asked what would most help their businesses, 45% of high street operators pointed to increased customer footfall, 34% cited lower overheads, and 12% said reduced competition from online platforms.
The top concern for high street firms in 2025 is rising operational costs, identified by 52% of business owners. This was followed by declining sales (29%) and the risk of closure (8%). Other issues raised include staffing cuts, crime, and competition from national or online brands.
While many businesses are adjusting to new conditions, ongoing financial constraints appear to be limiting growth and investment across the SME sector.
