SME pressures now rival Covid-era levels, says parliamentary report

Small business owners have been warning for years about late payments, rising energy bills, complex taxes and shrinking high streets. Now, a report from the House of Commons Business and Trade Committee has put hard numbers behind those concerns, finding that cumulative pressures on SMEs are reaching levels comparable to the Covid-19 pandemic, but without the coordinated support that existed then.

Evidence gathered by the Committee shows many SMEs are operating with little financial resilience and limited capacity to absorb further shocks. Late payments alone left small businesses owed £112 billion in unpaid invoices by the end of 2024, according to Sage, while administrative costs and rising energy bills continue to erode margins. 

For many firms, survival now depends on juggling costs, delaying investment or raising prices. And while these steps may buy some time, they don’t solve the underlying pressures.

Familiar problems

Many of the pressures identified by the Committee will feel painfully familiar to small business owners. Late payments remain a major issue. Nearly half of invoices are paid late, and in sectors like construction, payment terms stretching to 60-90 days are now routine. For small firms with tight cash flow, that’s not just inconvenient: it can be existential. In fact, the report estimates that around 38 small suppliers close every day due to late payments.

Meanwhile, administrative burdens continue to mount. The Federation of Small Businesses estimates tax compliance costs SMEs nearly £25 billion a year and 242 million working hours. Even getting answers from HM Revenue and Customs can be difficult, with millions of business calls going unanswered annually.

None of this is new. Small firms have been flagging these issues for years. What’s changed is the cumulative effect: higher energy bills, rising wage costs, retail crime, shifting tax rules and weakening high streets all hitting at once.

And recent policy decisions have added further strain.

The National Hair and Beauty Federation says new tax and policy measures have increased annual costs by around £25,000 per business in its sector. The British Retail Consortium estimates the Autumn Budget added £7 billion in regulatory and policy costs to retail, while UKHospitality reported 69,000 job losses linked to those measures.

At the same time, energy prices remain higher than they were just a few years ago, and retail crime is costing businesses billions each year. Many firms have already raised prices to cope, and are now reaching the limits of what customers can feasibly absorb.

The result? An ecosystem where small businesses are operating with little financial resilience and few buffers against further shocks.

What the report recommends

The Committee was clear to highlight that today’s pressures are “cumulative, structural and self-reinforcing”, warning they could accelerate closures, hollow out high streets and undermine growth if left unaddressed.

To tackle this, it has set out ten recommendations which are aimed at creating a more coherent support system for SMEs.

Key proposals include:

• Ending the late payment crisis with enforceable rules and mandatory transparency.

• Reforming VAT thresholds that discourage small firms from growing.

• Replacing business rates with a fairer system that reflects ability to pay.

• Expanding SME access to public procurement, with a target for 30% of government spending to reach smaller firms.

• Targeted energy support and fairer pricing for smaller businesses.

• Stronger action on business crime, including better policing and enforcement.

• Simpler skills and apprenticeship systems designed around SME needs.

• Better high street regeneration powers for local authorities.

• A coherent national SME support framework to replace fragmented schemes.

• Improved SME data and cross-government coordination so policies reflect real-world conditions.

These aren't radical ideas. Many small business groups have advocated them for years. But having them formally recognised in a parliamentary report adds momentum, and potentially accountability.

What small businesses need now

SMEs aren’t asking for special treatment; they’re asking for a fair environment in which to plan, invest and grow. That means predictable tax policy, prompt payment, accessible support and a level playing field with larger firms.

The Committee’s report will be seen by many as welcome acknowledgement that the current landscape is tougher than it should be. Recognition alone won’t solve the problem, but it’s a step toward the coordinated action SMEs have long needed.

If policymakers, lenders and larger corporations respond constructively, the UK’s small businesses can continue to do what they've always done: adapt, innovate and sustain local economies. The sooner meaningful support arrives, the stronger the chances that communities and high streets will continue to thrive.