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Small businesses have warned they are heading into an “unprecedented cost crunch” in April, with over a third of employers planning to cut output or shut down as higher taxes and bills take effect.
The Federation of Small Businesses (FSB) has written to Rachel Reeves, warning that a combination of rising energy standing charges, business rate increases, higher employment costs and changes to statutory sick pay risk tipping firms over the edge.
The group said 35 per cent of small businesses are planning to close or reduce output over the next year, due to higher energy costs, an increase in the national living wage and higher dividend tax rates.
Elsewhere, research from the British Retail Consortium (BRC) found 61 per cent of retail finance chiefs plan to reduce staff hours and overtime.
Meanwhile, 45 per cent expect to freeze recruitment amid concerns about rising employment costs and new workers’ rights.
The warnings come as finance brokers report mounting anxiety among their SME clients.
According to Iwoca’s latest SME expert index, 58 per cent of brokers cite increased running costs as small business owners’ biggest concern.
That number rose from 48 per cent in the third quarter of 2025 and is the highest level recorded since the survey began in 2022.
A third of brokers, or 33 per cent, said the upcoming minimum wage increase would have the most negative impact on small firms.
Increases to dividend tax rates were the second biggest concern, followed by business rates reform.
Demand for support rises
Three-quarters, or 74 per cent of brokers expect SME borrowing to increase over the next six months, up from 66 per cent in the previous quarter.
Iwoca’s SME lending thermometer rose to 5.98 in the fourth quarter of 2025, from 5.15 in the third quarter, on a scale of one to 10.
Giovanni Contratti, director of the broker channel at Iwoca, said: “Small businesses are clearly feeling the pressure of rising costs, and the further Government-mandated cost increases in April will add to that burden.”
“Demand for finance is growing as businesses look to invest and continue growing.”
Meanwhile, a recent report by the House of Commons Business and Trade Committee concluded that small firms are operating under cumulative pressures comparable in some cases to those seen during the pandemic.
The committee found SMEs were owed £112bn in unpaid invoices at the end of 2024, with around 38 small suppliers estimated to close each day as a result of late payment practices.
Average electricity prices in 2024 remained nearly double their level three years earlier, while retail crime is estimated to cost businesses £4.2bn annually.
Meanwhile, innovation and export activity among SMEs have fallen to a four-year low, according to the latest State of Small Business Britain report from the Enterprise Research Centre.
While 36 per cent of working-age adults are planning to start a business, the highest level on record, the proportion of SMEs reporting product innovation has dropped from 30.4 per cent in 2021 to 24.1 per cent in 2024.
Stephen Roper, director of the Enterprise Research Centre, said: “The UK has a remarkably resilient and creative entrepreneurial culture. We are seeing a worrying decline in innovation and exporting”.
