UK business facts and statistics: 2022

We’ve collated the latest business statistics and facts on UK businesses including; sectors, size, employment, type, age, owners, location, performance and investment. Here's what we found.
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It has been a difficult time for business owners over the last decade, with the 2008 financial crisis, Brexit, the COVID-19 pandemic, and now the cost of living crisis. Despite this, in 2021, there were 5.6 million businesses registered in the UK – with 99.9% of these classified as small to medium-sized enterprises (SMEs). 

Delve deeper into the business landscape and explore the UK business market further with our comprehensive business statistics and facts for 2022.

Visit our business hub to find all our best deals on business finance products and guides.

On this page, we’ll cover:

  • Business size statistics

  • Small business employment statistics

  • Business age statistics

  • Small business creation statistics

  • Business owner statistics

  • Family owned business statistics

  • Business location statistics

  • Business income statistics

  • Business finance statistics

  • Business investment statistics

  • Online business statistics 

  • UK business statistics per sector

  • The cost of living crisis and its impact on small businesses

Business size statistics

How many businesses are there in the UK?

As of January 2021, there were 5.6 million private sector businesses in the UK. The private sector is largely made up of self-employed owner operators, sole traders and small business employers. In fact, SMEs account for 99.9% of all the businesses in the UK (5,583,245), while 96% of the UK’s businesses have fewer than 10 employees.

At the beginning of 2021, of the 5.6 million private sector businesses, 1.4 million had employees, and 4.2 million had no employees (in other words, self-employed), which means a staggering 75% of businesses didn’t employ a single person aside from the owner(s). 

In 2021, there were 5.5 million small businesses (0-49 employees), accounting for 99.2% of the total business population in the UK. 35,600 were medium-sized businesses (50-249 employees), accounting for 0.6% of total businesses. A further 7,700 businesses are considered “large” (250+ employees), accounting for just 0.1% of the UK’s business population.

A breakdown of the number of businesses in the UK and their employment (2021)

Updated 4 August 2022
All businesses5,590,90026,972
SMEs (0-249 employees)5,583,24516,333
Small businesses (0-49 employees)5,547,62512,859
With no employees4,174,9204,539
All employers1,415,98022,433
Of which
1-9 employees1,162,1554,209
10-49 employees210,5504,111
50-249 employees35,6203,474
250+ employees7,65510,639
Source: GOV.UK

Small business employment statistics

How many jobs are created by small businesses?

In 2021, total SME employment was an impressive 16.3 million – that’s 61% of private sector jobs. This means SMEs account for more than three in every five people employed in the UK private sector. 

To break it down further, employment in small businesses was 12.9 million (48% of private sector jobs), and medium-sized businesses were 3.5 million (13% of private sector jobs). 

Despite having a smaller share of businesses, the 7,700 large firms in the UK make a significant contribution to employment and the nation’s turnover. In 2021, they employed 10.6 million people (39% of private sector jobs) and had a turnover of £2.1 trillion, equating to just under half (48%) of the UK’s overall earnings. 

A breakdown of the contribution of different sized businesses to total population, employment and turnover (2021)

A bar chart showing the contribution of small, medium and large-sized businesses to total population, employment and turnover in 2021.

How has the business population changed since 2020?

Despite there being 5.6 million businesses in the UK in 2021, which is 2.1 million more than the 3.5 million businesses in 2000, this is a fall from the beginning of 2020 when there were 5.9 million. This is a decrease of 6.5% – or 389,600 businesses – in the space of one year, to be exact.

This is the largest decrease in the nation’s business population since records began in 2000 and the second year-on-year fall, with the first being between 2017 and 2018, when the number of businesses fell by 0.5%. The decline was predominantly seen in businesses with no employees (the self-employed).

However, it’s not all bad. Since 2000:

  • the number of non-employing businesses has increased by 1.8 million (77%)

  • the number of employing businesses has increased by 305,000 (27%)

  • the number of medium-sized employers grew by 33%

  • the number of large businesses grew by 7%

  • non-employing businesses accounted for 86% of total business population growth over the period

A breakdown of the number of businesses in the UK (2000 to 2021)

A line graph showing the number of private sector businesses in the UK between 2000 and 2021. The line increased steadily until 2021, when it declined for the first time.

The impact of buy-to-let tax changes on the number of registered businesses

Part of the recent rise in the number of registered businesses in the past few years can be directly linked to the way property is taxed.

In April 2020, buy-to-let tax changes came into full effect, meaning that landlords could no longer deduct any of their mortgage expenses from their rental income to reduce their tax bill. Now landlords receive a 20% tax relief on mortgage interest payments instead. As a result, many landlords registered their properties as businesses for the first time.

Data from Companies House found that, during 2020, there were a record number of new limited companies (also known as incorporations) to hold buy-to-let properties. In 2020, 41,700 buy-to-let incorporations were set up – up 23% on 2019 – which increased further to 47,400 in 2021.

Business age statistics

The average age profile of companies in the UK

The average age of a company has gradually declined from 10.7 years in 1999 to 2000 to 8.5 years in 2020 to 2021. 

Since 1999 to 2000, the steady decline in the average age of a company could be due to the general increasing trend seen in the number of incorporations and dissolutions. Therefore, it is likely that the increasing number of incorporations has led to a greater number of younger companies on the register, which lowered the average age of companies overall as a result. 

A breakdown of the age profile of companies on the UK register (2021)

A bar chart showing the breakdown of the age of companies on the UK register in 2021. The most common is 1-4 years old, followed by 5-9 years.

Small business creation statistics

How many new businesses are launched in the UK?

The total register size – including those in the process of dissolution and liquidation (305,890) – at the end of March 2021 was 4,716,126. When compared with the same period in March 2020, this is an increase of 8.4%. Disregarding businesses in the process of dissolution or liquidation, the number of registered businesses was 4,410,236.

Regionally, England and Wales had the highest number of registered companies, with a combined total of 4,408,528 businesses – up 8.6% from 2020. Scotland had 237,124 registered companies, up 5.6%, and Northern Ireland had 70,474 registered firms, up 7.4%.

A breakdown of the number of companies on the total register by region (2021)

A map of the United Kingdom showing the number of companies on the total register by region in 2021. The UK had 4.7m registered companies - 4.4m were from England and Wales.

During 2020 to 2021, there were 810,316 new businesses, which is an increase of 21.8% compared to 2019 and the highest number of business launches since records began. 

However, in the same year, there were 437,790 company dissolutions – a decrease of 18.5% compared with 2019 to 2020. This is the lowest number of dissolutions since 2016 to 2017 and has been impacted by multiple easements announced by Companies House in response to COVID-19 and the imposed national lockdown measures.

Regionally, the highest rate of decrease in the number of dissolutions in 2020 to 2021 were found in England and Wales (18.9%), followed by Northern Ireland (14.7%), and Scotland (10.1%).

Despite fluctuations coinciding with the government’s national lockdown measures, the number of incorporations and dissolutions over time have increased at a steady rate. There were 692,516 more incorporations in 2020 to 2021 compared with the number of incorporations in 1986 to 1987 when records began. There were 353,590 more dissolutions in 2020 to 2021 when compared to 1986 to 1987.

If you’re interested in reading more small business statistics, we’ve collated the latest facts and statistics on UK businesses including; growth, profits, sectors, business failure and how COVID-19 affected SMEs.

Business owner statistics

What kind of firms make up the UK’s business population?

There are three main legal forms of business in the private sector: 

  • Sole proprietorships: A business owned and run by one person, and there is no legal distinction between the owner and the business entity.

  • Ordinary partnerships: A business owned and run by two or more people. No formal agreement is necessary, and partners share risks, costs and responsibilities. 

  • Companies: A business owned by its members. There is limited liability, which means the company’s finances are separate from the personal finances of its owners, and creditors may only pursue the company’s assets to settle a debt.

In 2021, more than half of the UK private sector was taken up by sole proprietorships (56%) or self-employed businesses. Just over a third of businesses are actively trading, and 7% are ordinary partnerships. 

A breakdown of the number of UK businesses in the private sector, with and without employees (2021)

Updated 4 August 2022
Business typeNumber of businesses% of all businessesBusinesses with employeesBusinesses with no employees
Sole proprietorships3.2 million56%221,0002.9 million
Companies2 million37%1.1 million951,000
Ordinary partnerships384,0007%98,000286,000
Source: BEIS,Business Population Estimates, 2021

Over the years, the popularity of these legal forms have changed. Between 2020 and 2021, the number of companies increased by 21,000 (1%), sole proprietorships decreased by 382,000 (11%), and ordinary partnerships decreased by 29,000 (7%).

By comparison, in the period between 2010 and 2021, the number of sole proprietorships grew by 401,000 (15%), and the number of companies increased by 778,000 (61%). However, the number of ordinary partnerships fell by 71,000 (16%).

Further to this, SME Finance Monitor reports that, in 2021, 72% of companies had one owner. This means that, of all SMEs, 84% were either sole proprietorships or companies with one owner, higher than the 75% recorded in 2020. This number is likely due to the uptick in people deciding to start a side hustle or go it alone and start up their own business following the Great Resignation towards the end of 2020. And, of these business owners, 9% ran more than one business.

Family owned business statistics

How many businesses are family-owned?

In 2020, 77% of SMEs were defined as family-owned businesses, up from 74% in 2019. Of the smaller enterprises, comprising 80% of micro-businesses, 66% of small businesses, and 58% of medium-sized companies. 

Family businesses were most likely to be in the following sectors:
  • Construction (88%)

  • Primary (86%)

  • Retail and wholesale (84%)

  • Transport, accommodation and food (83%)

  • Administration (81%)

Business location statistics

Which area of the UK is home to the most businesses?

Between 2020 and 2021, there were 1,029 businesses per 10,000 resident adults in the UK. This number was even larger in London, with 1,460 businesses per 10,000 residents–the highest number in UK countries and English regions.

The “North-South divide” is very much apparent in the number of companies, as there were just 700 businesses per 10,000 residents in the North East – the lowest business density rate of all UK countries and English regions.

A breakdown of the number of businesses in the UK private sector per 10,000 adults in UK countries and English regions (2021)

A map of the United Kingdom showing the number of businesses in the UK private sector per 10,000 adults in UK countries and English regions. London has the most overall.

In terms of the number of businesses, a third of the UK business population (34%) can be found in London or the South East, with 1 million and 875,000 businesses, respectively. 

Of these businesses, there are 1,041,000 SMEs in London, which account for 99.8% of all businesses in the capital. In the South East, there are 874,000 SMEs, which account for 99.9% of all businesses in the region.

Just over one in three UK businesses are in London or the South East.

A breakdown of the number of businesses and employers per region (2021)

Updated 4 August 2022
Country/RegionNumber of enterprises% changeEmployersNumber of SMEs
United Kingdom5,591,000-7%1,414,0005,585,000
Northern Ireland124,000-17%37,000124,000
South East875,000-6%209,000874,000
East of England568,000-5%140,000567,000
South West522,000-7%125,000522,000
West Midlands446,000-8%119,000445,000
Yorkshire and the Humber414,000-2%105,000413,000
East Midlands367,000-7%101,000367,000
North West528,000-6%142,000528,000
North East154,000-5%41,000154,000
Source: House of Commons Library

Businesses are on the decline

Between 2020 and 2021, the number of businesses declined across the UK. The number of private sector businesses decreased in all regions and countries of the UK, with the largest percentage fall documented in Northern Ireland, where the number of businesses fell by 17% (25,000). Northern Ireland was followed by Scotland, with a fall of 8% (38,000), England with a fall of 6% (336,000), and Wales with a fall of just under 1% (1,000). 

Since 2010, the number of businesses has increased in all the UK countries and regions. The most significant increase has been in London (45%), and the smallest increase has been in Northern Ireland (4%)

Business income statistics

Which business sector makes the most profit?

The median profit of SMEs in the UK in 2021 was approximately £11,000, with SMEs in the property and business services and the wholesale and retail sectors having the highest average profit (£13,000).

In contrast, the health and social work sector made the least average profit in 2021 at £9,000.

A breakdown of median profit made by UK SMEs (2021)

A bar chart showing the median profit made by UK SMEs per sector in 2021. Property & business, and wholesale & retail topped the list, making £13K each.

Analysis of business performance in 2021

As of the fourth quarter of 2021, 53% of SMEs in the UK reported that they had made a profit in the previous 12 months, compared with 7% that broke even, and 18% that made a loss. The share of SMEs that made a profit was relatively stable until 2020, when it fell from 73% in the first quarter of that year to 47% in the second quarter of 2021.

Business performance of SMEs in the UK from Q1 2012 to Q4 2021

A line graph showing the business performance of UK SMEs from Q1 2012 to Q4 2021, including whether they made a profit, broke even or made a loss.

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Business finance statistics

At the end of Q4 2021, 21% of SMEs were borrowing more than they had before the pandemic: 11% had started borrowing, 7% had taken on additional facilities, and 3% were making more use of existing facilities. 

Those with 1-9 (30%) or 10-49 (33%) employees were more likely to be borrowing more, as were those in the Hotel & Restaurant (29%) or Transport (27%) sectors, compared to 17-24% elsewhere. 

33% of new borrowers were worried about repaying their facilities, as were 32% of those who had taken on new facilities. Overall, the equivalent of 8% of all SMEs expressed concern about repayments.

Business lending statistics

Gross lending (excluding overdrafts) to SMEs by all UK banks in 2021 was £57.7billion, according to the Bank of England. This was up 1% from £56.9billion in 2019, before COVID-19. However, 2021 lending was 45% down from 2020, when a record £104.8billion was recorded. The record gross lending in 2020 was driven by the Bank’s Coronavirus Business Interruption Loan Schemes, particularly the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Bank Loan Scheme (BBLS), which were the most relevant to SMEs.

While gross bank lending in 2021 was slightly above 2019, the picture changes when you include inflation. In reality, 2019 gross bank lending was £2.4billion above 2021. Furthermore, 2021 gross bank lending was the lowest since 2013, when lending was still recovering from the Global Financial Crisis (2007-2008).

According to SME Finance Monitor, overall application success rates across all products increased from seven in 10 immediately pre-pandemic (71% for Q3 2018 to Q4 2019) to more than eight in 10 since (85% from Q3 2020 to Q4 2021). 

However, the Small Business Index found that successful finance applications have been plunging in 2022. Fewer than one in ten (9%) small businesses applied for finance in Q1 2022, and the share that saw applications approved (43%) is at a record low.  

Of the companies that did secure finance in 2022, four in ten (42%) plan to use credit to manage cash flow, considerably more than the numbers planning to use funds for equipment updates (21%), expansion (19%), or recruitment (4%).

Of those that applied for finance, the majority (61%) sought traditional overdrafts and/or business loans. A quarter (25%) applied for asset-based finance, such as invoice finance, and one in fifteen (7%) looked for funds through peer-to-peer platforms while one in 20 (5%) tried crowdfunding.

This is backed up by SME Finance Monitor, that found eight in 10 SMEs with a need for finance said that it was cashflow related in some way (81%), increasing as the SME size increases. A quarter also said they needed funding for some form of business development (24%), with SMEs with up to 10 employees most likely to look for funding for this – especially new plant and machinery, and to fund expansion in the UK.

A breakdown of why funding was required by UK SMEs in Q4 2021

A table showing survey results whereby UK SMEs were asked why they sought funding in 2021, compared to previous years. Cash flow was the top answer.

Bank of England figures show the demand for lending has eased, driven in part by the post-pandemic changes to smaller businesses’ debt positions and a lack of business investment. The annual growth rate of lending to SMEs is at a record low, despite small businesses making net debt repayments totalling £65.7billion in 2021–up 14% from 2020 and 19% higher than 2019–and close to £1billion in March 2022 alone.

According to SME Finance Monitor, this could also be because almost three in 10 SMEs injected personal funds into their business in 2021, compared with around a quarter in 2020. A quarter of all SMEs said that it was something they felt they “had” to do–up from 11% in 2019.

How many UK small businesses use external finance?

According to SME Finance Monitor, 43% of SMEs used external finance in 2021, which aligns with 2019 levels (45%) after slightly lower use in 2020 (37%). The increase in use was seen more amongst smaller SMEs, with the largest SMEs less likely to be using external finance than previously (37%), and the highest use was amongst those with 10-49 employees (62%) and those in the Hotel & Restaurant sector (55%).

What is external finance?

Sources of finance that come from outside a business. These include friends and family, bank loans and overdrafts, venture capital and business angels, new partners, share issue, trade credit, leasing, hire purchase, and government grants.

The widespread usage of the Bounce-Back Loan Scheme (BBLS) and pandemic-related grants mean these were the most common finance forms SMEs applied for between 2019 and 2021. A third (32%) of those who sought finance during this time applied for the BBLS, followed by a quarter (25%) who applied for grant funding.

For this reason, the number of SMEs seeking business loans, business current account overdrafts and business credit cards, as well as leasing or hire purchase, have markedly declined. For example, bank overdrafts dropped from 19% in 2019 to just 3% in 2021. 

Despite this, most companies still see business credit cards as an essential tool – especially SMEs – with Forbes finding two-thirds (67%) of small businesses have a company credit card. However, just a quarter (24%) say it’s their primary method of business spending.

A breakdown of SME demand for finance in the UK (2019-2021)

A table showing the types of finance SMEs have asked for in the UK in 2021 and how this has differed from 2019 and 2020. Bounce Back Loans were the most popular in 2021.

How much finance is sought by SMEs?

Businesses with employees are more likely to seek external finance (72%) than firms with no employees (55%). 

Furthermore, employers are more likely to seek higher values than zero-employee companies. In fact, in 2021, almost half (48%) of SME employers sought external finance exceeding £25,000 – considerably more than companies with no employees (18%).

Companies with no employees were most likely to seek a median of £10,000 in external finance, compared with SME employers seeking a median of £25,000. In general, all businesses seek a median of £10,000. These numbers increased in 2021, which is likely due to the effects of COVID-19 and Bounce-Back Loans.

A breakdown of the median value of external finance sought by UK SMEs (2020-2021)

Updated 4 August 2022
Type of business2021 median value2020 median value
All companies£10,000£10,000
No employees£10,000£8,000
SME employers£25,000£25,000
Source: British Business Bank

Barriers faced by ethnic minorities

Before the pandemic, demand for finance from ethnic minority-led businesses was similar to that of other firms. Applications increased significantly among all smaller businesses from Q2 2020 to Q2 2021, but the increase was far greater among ethnic minority-led businesses.

There was also an increase in the use of finance, with around half (51%) of ethnic minority-led businesses using finance from Q2 2020 to Q2 2021, significantly above other businesses.

Increased use of finance has been driven by increased take up of loans, particularly government-backed loan schemes. In 2021, ethnic minority-led businesses were significantly more likely to be using a Bounce-Back Loan than their counterparts – 34% compared to 22%, respectively.

Read more about this in our diversity in business statistics page, which includes facts and statistics on the number of ethnic minorities and women in business.

Business investment statistics

How Brexit has impacted small business investment

Following the 2016 referendum, data from the Bank of England shows that around 45% of businesses rank Brexit as one of their business's top sources of uncertainty.

According to the Bank of England, businesses with a higher level of Brexit uncertainty have enjoyed less investment growth post-referendum than those with lower Brexit uncertainty. 

In May 2021, the Bank of England asked business members how they thought the UK’s decision to leave the EU had affected investment. Businesses reported that in 2020, investment was 5.5% lower than it would have otherwise been.

How COVID-19 has impacted small business investment

Small businesses across the UK benefited from the government’s financial support measures. 1,670,939 government-guaranteed loans worth £79.3billion were evenly distributed to organisations throughout the country.

Parliament bulletins also show that 11.7 million employee jobs were furloughed as part of the Coronavirus Job Retention Scheme (CJRS), costing £70billion.

However, self-employed workers were not given the same level of support as small businesses. Many were not eligible for the CJRS scheme and couldn’t pay their own salaries as a result.

Consequently, the number of people registered as self-employed dropped by 8.6% in 2021 compared to 2020. This was after increasing 93.9% over the previous 20 years.

Online business statistics 

The UK has the most advanced e-commerce market in Europe and, according to the most recent figures from the Office for National Statistics, the UK’s e-commerce revenue in 2019 amounted to £693 billion–a sharp increase on the year before.

The UK has the highest number of online shopping users in Europe compared to population. Between 2016 and 2017 alone, e-commerce sales went up by £80 billion.

In 2021, the UK had Europe’s biggest B2C e-commerce market, with UK consumers spending 254 billion euros on online purchases, roughly twice as much as the French, who came second (123.4 billion euros). As a result, based on internet shopping figures, the average revenue per user is expected to reach £2,490 in 2022.

Comparatively, online B2C sales peaked at £197.1 billion in 2019, up £8.8 billion from 2018 (£188.3 billion). B2B sales didn’t see such a large jump, with sales declining from £166.1 billion in 2018 to £159.3 billion in 2019.

Online retail

The retail sector was responsible for around 8% of e-commerce sales across all industries. In the retail sector alone, online sales constituted 19.4% of all retail in 2019 and are forecast to account for 28.9% due to the impact of the coronavirus pandemic. In 2020, internet retail sales had grown by only 46.1% – the fastest rate recorded in the past decade. 


In 2020, UK consumers collectively spent 82 billion hours on shopping apps – up 30% from 2019. So it is unsurprising that mobile commerce represented 60% of online retail sales in the UK in 2021–the highest percentage in Europe. Moreover, 87% of UK households made online purchases in 2020, making this the highest rate in the country in the past 11 years. 

In 2021, clothing was the most bought item online in the UK, with 55% of online shoppers, followed by food deliveries from restaurants (32%), printed books, magazines or newspapers (29%), and furniture, home accessories or gardening products (28%). The least purchased items online were bicycles, mopeds, cars or other vehicles or their spare spares – due partly to the COVID-19 restrictions imposed on consumers in 2020.


In 2020, digital/mobile wallets were a popular payment method used by a third (32%) of consumers who made e-commerce payments. While conventional methods, such as credit or debit cards, still held a higher share, shoppers also used online payment systems such as PayPal. Up to one-third of UK consumers preferred to shop online and postpone the actual payment through “Buy Now Pay Later” schemes. This is particularly popular for purchases of casual wear and beauty products.

UK business statistics per sector

Which sector has the most UK businesses?

In 2021, there were 4.2 million businesses in the services industry, equating to just over three-quarters of all companies in the UK. 

The construction industry makes up 16% of the UK’s business population and is almost entirely populated by SMEs (913,000). A considerable number of SMEs were also operating in the Professional, Scientific and Technical Activities (849,000 or 15%) and Wholesale and Retail Trade and Repair sectors (557,000 or 10%).

A breakdown of UK businesses by industry (2021)

Updated 4 August 2022
SectorBusiness populationBusiness %
Agriculture, mining and utilities1823%
Total services4,22576%
Of which
Accommodation & food2014%
Financial and Insurance982%
Real estate activities1342%
Professional and scientific84915%
Administrative & support service4668%
Health and social work3396%
Arts and recreation2785%
Other service activities3426%
Source: House of Commons Library

Sectors experiencing the most growth

In 2021, approximately 18% of SMEs in the UK reported that they had achieved growth in the previous 12 months. SMEs in the agriculture sector were most likely to grow in 2021, with almost a quarter of SMEs reporting annual growth. 

Agriculture was closely followed by Manufacturing and Property and Business services, with a fifth (21%) of SMEs in these sectors reporting growth in 2021.

Percentage of SMEs that achieved growth in the UK (2021)

A bar chart showing the percentage of SMEs in the UK that achieved growth per sector in 2021. Agriculture had the highest with 23% growth, versus 18% for all SMEs.

Which UK business sector employs the most people?

The UK sector that employs the largest number of people is wholesale and retail trade. This industry is responsible for 18% of the UK’s workforce, with 46% of its employees working for small or medium-sized businesses.

A bar chart showing the number of employees per sector in 2021. Wholesale and retail trade employed the most people, compared to the energy and natural resources with the least.

Which UK sectors have grown over time?

Due to the current business climate, very few industries managed to grow their business population between 2019 and 2020. Notably, businesses in the energy sector (eg electricity, gas, water, mining and quarrying) fell by just over a quarter (26.4%) due to rising supply chain costs. However, wholesale and trade, finance and insurance, and real estate grew by 3,800, 6,100, and 7,100, respectively. 

On a positive note, the total number of employed people between 2020 and 2021 increased by 7,600. This suggests that established businesses have enjoyed growth over the past year.

Six out of 16 industries did not grow their workforce. These were:

  • Agriculture, Forestry, and Fishing

  • Information and Communication

  • Finance and Insurance

  • Professional and Scientific

  • Administrative

  • Arts and Entertainment

Source: GOV.UK

The cost of living crisis and its impact on small businesses

The cost of living has been on the rise since early 2021, and inflation reached a 30-year high in February 2022. This has an effect on businesses on the affordability of goods and services. 

We've broken down some ways the cost of living crisis will impact SMEs, and how they can deal with this stressful time.

Increase in rent and rates

In autumn 2021, the government officially ended its "work from home" guidance. As a result, many office workers have been heading back to the office, thereby increasing the cost of commercial real estate. This rent increase is likely to have a detrimental impact on many businesses – particularly SMEs – resulting in businesses eating into profitability or forcing them out of business premises altogether. 

According to a poll of 1,000 businesses by the British Chambers of Commerce, three out of five businesses are putting up their prices. The survey found that half are cutting costs, while one in five is scaling investment back, and around 5% are thinking about stopping trading altogether.

If you find yourself struggling to keep up with increasing rent, your commercial lease will be subject to a rent review – typically every three to five years. Landlords often adjust the rent based on the open market rental value or Retail Prices Index (RPI). Consider speaking to a specialist advisor to help you negotiate the best terms for you and your business. 

Rising energy bills

Due to there being no price cap for commercial premises, there have recently been significant changes in the rates quoted for business electricity and gas. The reason for this is simple: wholesale prices are at a record high. 

These rates affect the price everyone pays for their energy because suppliers purchase energy from the wholesale market and sell it to customers. When the prices rise, rates are subsequently increased to cover the extra costs, resulting in higher energy bills.

At the beginning of 2022, SMEs paid an average of 19.38p per kWh for electricity – slightly more than the average. This is a 5p increase since the same period in 2021 (14.19p per kWh). The same can be said for gas, albeit at a lower rate, with the price increasing by around 1p.

A breakdown of the prices of business energy in the UK (2020-2022)

Updated 4 August 2022
Year/quarterSmall/medium businesses (p/kWh)Average (p/kWh)Small businesses (p/kWh)Medium businesses (p/kWh)Average (p/kWh)
2020 (Q1)14.8913.662.342.32.41
2021 (Q1)14.1914.
2022 (Q1)19.3818.143.333.983.95
Source: GOV.UK

To combat this, we recommend switching to a fixed-rate deal, which prevents businesses from experiencing out-of-the-blue price rises. However, it's worth noting that rates will increase at your contract renewal date, so shopping around towards the end of your contract would be sensible. 

Increase in costs to get to and from work

Around half of all train fares in England and Wales, including season tickets on commuter routes and off-peak tickets, increased by up to 3.8% in March 2022. This is the biggest price hike in nine years. In Scotland, a further 3.8% rise has been imposed on-peak and off-peak regulated fares from 24 January 2023.

What's more, public transport fares in London also increased by an average of 4.8% in March 2022. 

Those driving to work have had to deal with increased fuel prices too, which reached an all-time high in 2022. At the time of writing, UK motorists were paying an average of £1.90 per litre for unleaded, and £1.98 per litre for diesel (RAC). 

This problem isn't exclusive to employees. Fuel is a major expense for small businesses and can impact supplies, deliveries and overheads. This affects how businesses price their products and services too – particularly when suppliers pass on their costs to clients.

There are various grants and funding available for businesses struggling with money on, including tax deductions on vehicles linked to business operations.

The increase in minimum living wages and wage bill 

As part of Rishi Sunak’s Autumn Budget 2021, it was announced that the National Living Wage would be increasing from £8.91 to £9.50 per hour from April 2022, and full-time workers will make an extra £1,000 a year.  

Further to this, in the 2022 Spring Statement, Rishi Sunak announced the government would be increasing Employment Allowance from £4,000 to £5,000 to tackle rising inflation, which is expected to benefit half a million small businesses in the UK. This change enables small businesses to reduce their employer National Insurance contribution (NIC) bills.

Find out more about the small business Employment Allowance on

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About James Andrews

James has spent the past 15 years writing and editing personal finance news, specialising in consumer rights, pensions, insurance, property and investments - picking up a series of awards for his journalism along the way.

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