- Small businesses say a wave of higher costs is hitting from April.
- Around 35 per cent are considering cutting output or shutting down.
- Employers warn rising wage and energy bills are squeezing margins.
Small businesses across the UK are warning of an “unprecedented cost crunch” from April, with many saying the pressure could force them to scale back or even shut down. The warning from the Federation of Small Businesses comes as firms grapple with rising energy bills, higher employment costs and changes to statutory sick pay, all landing at once.
The small businesses cost crunch has become a growing concern for policymakers, with industry leaders arguing that mounting expenses are starting to bite just as many firms are trying to stabilise after a difficult period.
A growing pile of bills
The Federation of Small Businesses has written to chancellor Rachel Reeves outlining the scale of the challenge. The group says about 35 per cent of small firms are planning to close operations or reduce output over the next year as costs continue to rise.
Higher standing charges for energy, increases to the national living wage and rising dividend tax rates are among the biggest pressures. Tina McKenzie, policy and advocacy chairwoman at the FSB, said running a small company “is about to get a lot more expensive”, reportedly warning that this could undermine economic growth, as quoted in a news report.
She added that when profits are squeezed by policy changes, firms have less room to invest or expand, reportedly said in the letter.
Employment costs climb sharply
According to analysis shared by the FSB, a business employing nine people on the national living wage could see annual employment costs rise by £25,850 between January and April 2026, a jump of 12.9 per cent.
The organisation also said a typical small shop or restaurant could see business rates increase to £5,590 from £4,790. Changes to dividend tax rules could cost owners earning £50,000 about £578 a year.
Meanwhile, removing the lower earnings limit for statutory sick pay is expected to add further strain, with average costs estimated at £990 annually for a business with nine employees.
Business owners say the impact is being felt in everyday operations, with utility bills and wage increases creating a knock on effect across spending. Some say they are spending more time searching for new energy contracts just to keep budgets predictable, reportedly said in a news report.
Others warn the steady rise in costs is making firms cautious about hiring, with some reluctant to take on new staff as expenses continue to climb.
As April approaches, the concern among small firms is not just about one change, but the cumulative effect of many. For some, the fear is that without relief, the pressure could reshape how — or whether — they operate in the year ahead.
