Small businesses are bracing for what they’re calling an “unprecedented cost crisis” in April. More than a third warn they could close or scale back operations if a series of higher spending comes into force.
The Federation of Small Businesses (FSB) has written to Rachel Reeves warning that the cumulative impact of rising energy bills, business rates, higher labor costs and changes to statutory sick pay could threaten economic growth.
A survey by the FSB found that 35 percent of small businesses plan to either close or reduce production in the coming year in response to higher basic energy charges, an increase in the national living wage and higher dividend tax rates.
Tina McKenzie, the FSB’s policy and advocacy chair, said the burden of new costs would have a direct impact on companies’ ability to invest. “Running a small business is becoming much more expensive,” she wrote. “When profits are cut by government policy, companies cannot grow.”
The FSB estimates that an employer with nine employees paid the national living wage will see their annual employment costs rise by £25,850 between January and April 2026, an increase of 12.9 per cent.
It also calculates that business rates for a typical small shop or restaurant will rise from £4,790 to £5,590 this year, while changes to dividend tax, a common way for owner-directors to earn income, will cost an extra £578 a year on profits of £50,000.
The abolition of the lower earnings limit for statutory sick pay is likely to increase the pressure further. The FSB estimates the change will cost a business with nine employees around £990 a year.
Jane Wiest, head of Initially London, a retailer specializing in monogrammed products, said rising sales had been overshadowed by higher taxes and operating costs.
“We had a strong January, but then those taxes started hitting,” she said. “You’re trying to figure out how the money coming in can cover the expenses going out. That makes it harder to hire or invest because you’re carrying this constant burden.”
Sarah Curtis, who runs a historic shipyard in Ipswich, said rising wages and utility bills were making recruiting increasingly difficult.
“There are so many little increases, utilities, wages, rates, and they all add up,” she said. “Small businesses are very reluctant to hire new people.”
The FSB argues that the combined effect of cost increases could lead to a deterrent to new hiring and a curtailment of expansion plans as policymakers try to stimulate economic growth.
While ministers have defended the measures as necessary to improve worker protections and fund public services, business leaders have warned that smaller businesses, which often operate on thinner margins and have limited access to affordable finance, are particularly at risk.
As April approaches, small employers say they face a difficult decision: incur higher costs, raise prices or scale back operations – all with potential consequences for jobs and the local economy.
