The Federation of Small Businesses (FSB) has issued a stark warning ahead of what it describes as an unprecedented “cost crunch” set to hit small firms this April — urging the Government to act in next month’s Spring Forecast or risk widespread closures and stalled growth.
With less than two months before a wave of higher bills comes into force, the FSB says millions of small businesses and self-employed people face mounting financial pressure from rising labour costs, higher business rates, soaring energy standing charges, changes to Statutory Sick Pay and tax increases.
Growing fears of contraction
According to new FSB research, more than a third (35%) of small businesses plan to close, downsize or contract over the next year. The outlook is even bleaker in key consumer-facing sectors:
- 41% in wholesale and retail
- 45% in accommodation and food services
More firms now report falling revenues than rising ones. As a result, 35% expect to shrink over the coming year, compared with just 21% who anticipate growth.
The organisation says the cumulative effect of Government decisions has created a record pace of cost increases — and warns that without urgent intervention, the UK’s 5.7 million small businesses could face serious damage.
Labour costs surge
One of the most significant pressures comes from employment costs. April will bring another rise in the National Living Wage (NLW), alongside increased employer National Insurance contributions (NICs).
Although the Employment Allowance offsets part of the burden, the FSB says it no longer sufficiently cushions small employers from escalating NIC liabilities.
A small business employing nine staff on the NLW has seen annual employment costs rise by £25,850 between January 2025 and April 2026 — roughly equivalent to hiring an additional employee. Over the same period, that firm’s employer NIC bill would have risen by £4,400, a 46% increase.
The FSB is calling on the Government to uprate the Employment Allowance so that it continues to cover the employer NIC costs of four employees on the NLW.
Business rates and property costs
Many small firms in England will also face higher business rates bills following commercial property revaluations and multiplier changes.
Retail, hospitality and leisure businesses are set to lose the existing 40% discount and transition to a new multiplier system. The FSB estimates this could mean an average 52% increase in bills over the next three years for affected firms.
The group is urging ministers to extend the current three-year support package for pubs to other small businesses in retail, hospitality and leisure, and to increase the Small Business Rate Relief threshold to £25,000.
It also warns that similar pressures are emerging in Wales, Scotland and Northern Ireland, where revaluations and related reforms are also taking effect.
Energy standing charges jump
Energy costs remain another major concern. From April, small firms will see annual standing charges rise by more than 40%.
A business using around 40,000 kWh of electricity per year — typical for a small restaurant, gym or hair salon — could see its annual standing charge increase from £3,680 to £5,283.
The FSB is calling for up to 75% of Renewable Obligation costs to be removed from non-domestic energy bills, mirroring support previously offered to households during the energy crisis.
Sick pay and dividend tax
Changes to Statutory Sick Pay (SSP) will also take effect in April, making all employees eligible from day one of illness. FSB analysis suggests this will add around £110 per year per worker on the minimum rate. The organisation is proposing a rebate scheme for small and medium-sized employers to help absorb the additional cost.
Meanwhile, dividend tax rates are due to rise by two percentage points, taking the basic rate to 10.75% and the higher rate to 35.75%. Many small company directors, who typically draw income through a mix of salary and dividends, will see reduced take-home pay.
The FSB is urging the Government to defer the basic rate increase until April 2027.
Additional compliance burdens, including Making Tax Digital requirements and Companies House fee increases, are also set to add further costs.
“Resilient but not invincible”
FSB Policy Chair Tina McKenzie said the cumulative effect of these measures could prove overwhelming, “April’s impending cost crunch will make running a small business in the UK more expensive — and that has real consequences.
It will push already struggling small firms past breaking point, deter would-be entrepreneurs from setting up in business as the numbers no longer stack up, and put the brakes on the small business growth the economy depends on.
Small businesses are resilient — but they are not invincible. They simply cannot go on absorbing endless cost increases.”
She added that many firms have already been forced to raise prices, reduce staff or shelve expansion plans.
With the Spring Forecast fast approaching, the FSB says it represents the Government’s final opportunity to soften the blow before April’s changes take effect. Without intervention, it warns, the mounting cost pressures could have lasting consequences for jobs, local communities and the wider UK economy.
Leave a Comment