Government policies are crushing small businesses

As an accountant working directly with small business clients, I witness daily the growing disconnect between government rhetoric about supporting enterprise and the harsh reality facing businesses on the ground. After a comprehensive analysis of current policies affecting small businesses in 2025, the evidence reveals a perfect storm of increased costs, administrative burdens, and contradictory requirements that threaten the very survival of the UK’s 5.5 million SMEs.

UK Small Business Crisis – Key Statistics

UK Small Businesses 2025: Key Statistics

Statistic	Figure	Context/Note
Total SMEs	5.5 Million	Down from 6 Million in 2020
Insolvencies	52 per 10,000	Nearly double the 2019 rate
Annual Tax Burden	£25 Billion	From tax compliance costs alone
NI Increase Burden	£25 Billion	From April 2025 changes

The government claims to be creating a “pro-business” environment while simultaneously implementing policies that will cost businesses £25 billion annually in tax compliance alone, with the recent National Insurance increases adding a further £25 billion burden. Meanwhile, 52 businesses per 10,000 are entering insolvency, nearly double the rate from just five years ago. This isn’t just statistics; these are real businesses, real jobs, and real families affected by policy decisions made in Westminster with seemingly little understanding of their cumulative impact.

The tax tsunami that’s drowning small businesses

The April 2025 National Insurance increase represents the most devastating single policy change I’ve seen in my career. The government’s decision to increase employer contributions from 13.8% to 15% while simultaneously lowering the threshold from £9,100 to £5,000 creates what clients describe as a “double blow” to their businesses.

National Insurance Impact on Small Businesses

Comparison of National Insurance Rates and Impact

Aspect	Before April 2025	After April 2025
NI Rate	13.8%	15%
Threshold	£9,100	£5,000

Annual Cost Impact Examples

• 10 Minimum Wage Workers: +£20,000
• Care Home (50 staff): +£225,000
• Manufacturing (100 staff): +£400,000

Business Confidence Plummets

Metric	2022	2024	2025
Business Confidence Index	45%	52%	49%
Expect Turnover Growth	65%	58%	49%
Tax as Primary Concern	45%	58%	63%
Plan to Hire	35%	28%	22%

The Federation of Small Businesses reports that 63% of businesses now cite tax as their primary concern – the highest level since 2017. Business confidence has plummeted to 2022 levels, with only 49% expecting turnover growth. The unintended consequences are already visible: businesses are deferring pay rises, freezing recruitment, and increasingly turning to contractors to avoid NIC liability altogether.

Making Tax Digital, promoted as “simplifying” tax administration, has actually increased compliance costs by 54% for participating businesses. Small firms now spend an average of £4,562 annually on MTD compliance versus £2,960 for non-participants – a clear example of government policy achieving the opposite of its stated intention. The requirement for quarterly reporting creates an ongoing administrative burden that many describe as “death by a thousand cuts.”

Making Tax Digital: Promise vs Reality

MTD Compliance Costs Breakdown

Cost Category	Percentage of Total
Software Subscriptions	35%
Professional Support	30%
Staff Training	15%
System Integration	12%
Ongoing Maintenance	8%

Annual MTD Compliance Costs:

• MTD Participants: £4,562
• Non-MTD Businesses: £2,960
• Cost Increase: 54% higher for digital compliance

Support schemes that exist mainly on paper

Government support schemes read impressively in press releases but deliver disappointingly in practice. The reality is a maze of complex applications, restrictive eligibility criteria, and low success rates that many businesses don’t bother trying.

Government Support Scheme Success Rates

Grant Success Rates

• Innovate UK Grants: 6.76% – 7.9% Success
• Regional Growth Funds: ~10% Success
• Start Up Loans: 68% Finance Additionality
• General Business Grants: <10% Success Rate

Engagement Rates

• Growth Hub Engagement: 5-8% of Regional Businesses
• Help to Grow Digital: Programme Ended Early
• SME Finance Applications: 46,339 vs 73,305 in 2019

Application vs Success Reality Check

Scheme Type	Applications	Success Rate	Average Processing Time
Innovate UK	1,000+	6.76%	6-8 months
Regional Grants	500+	~10%	4-6 months
Local Authority	200+	15%	3-4 months
Sector Specific	100+	12%	2-6 months

Innovate UK grants, touted as “game-changing” funding for innovation, have success rates of just 6.76% to 7.9%. Businesses invest weeks preparing detailed applications with a 93% chance of rejection. The Start Up Loans scheme, while showing better results with 68% finance additionality, requires personal liability that deters many potential applicants, particularly given current economic uncertainty.

Growth Hub engagement reaches only 5-8% of regional businesses despite aspirations for 25% coverage. The Help to Grow Digital programme ended abruptly with limited evaluation data published, leaving businesses who invested time in the application process high and dry. Only 46,339 SME finance applications were made in the first half of 2024, compared to 73,305 in 2019, suggesting businesses have simply given up trying to access support.

The British Business Bank’s data reveals that fewer than 10% of business grant applications succeed. When schemes do exist, they often require match funding, defeating the purpose for cash-strapped businesses, or have turnover thresholds that exclude the smallest enterprises who need help most. One client spent three months preparing a Regional Growth Fund application only to discover the match funding requirement made it impossible to proceed.

Regulatory burden reaches breaking point

The cumulative weight of regulatory compliance has reached critical mass. Research shows UK businesses face an estimated £17.2 billion annual regulatory cost increase during the current parliament – directly contradicting the government’s promise of no increase. Small businesses spend 69% more per employee on compliance than larger competitors, creating a competitive disadvantage that stifles growth.

Regulatory Burden: Small vs Large Business Cost Per Employee

Compliance Costs Per Employee

Business Size	Cost per Employee
Small Business	£8,500 per employee
Large Business	£5,000 per employee
Note: This represents a 69% higher cost for small businesses.

Small Business Compliance Requirements (Typical Annual Costs)

• Data Protection: £2,000-5,000
• AML Requirements: £3,000-8,000
• Health & Safety: £1,500-3,000
• Employment Law: £2,000-4,000
• Environmental: £1,000-6,000

Annual Regulatory Cost Increases (2024-2029)

Year	New Regulations	Estimated Cost Impact	Cumulative Burden
2024	15 new rules	£3.2 billion	£3.2 billion
2025	12 new rules	£4.1 billion	£7.3 billion
2026	18 new rules	£3.8 billion	£11.1 billion
2027	14 new rules	£3.1 billion	£14.2 billion
2028	16 new rules	£3.0 billion	£17.2 billion

The new Data Use and Access Act (June 2025), enhanced AML requirements, consumer protection regulations under the Digital Markets Act, and numerous other changes create a web of overlapping and often contradictory requirements. A typical small business now needs to navigate:

• Data protection rules conflicting with AML record-keeping requirements
• Multiple agencies requiring the same information in different formats
• Identity verification requirements varying between regulators
• Enhanced due diligence doubling customer onboarding time

One professional services client with eight staff faces £8,000 in new AML compliance systems, 40 hours of identity verification processes, and a 25% increase in professional indemnity insurance. The total compliance burden now consumes 15% of their turnover – unsustainable for a business operating on 8% margins.

Brexit’s permanent tax on small business

Despite government claims of “Brexit benefits,” the reality for small businesses remains overwhelmingly negative. British Chambers of Commerce data shows 77% of firms say the Brexit deal is not helping them grow. As many as 20,000 businesses have stopped exporting to the EU entirely, with the decline “entirely accounted for by small exporters with fewer than 10 employees.”

Brexit Impact on UK Small Business Trade

Impact on Business Growth

• Not Helping Growth: 77%
• Neutral Impact: 15%
• Helping Growth: 8%

Impact on Small Exporters

• Stopped EU Trade: 20,000
• Reduced EU Trade: 35,000
• Maintained Trade: 15,000

Impact on Food Exports

• Decline vs 2019: 34.1%
• Administrative Costs: £150M
• Ongoing Costs: £250M

EU Trade Performance: Pre vs Post-Brexit

Sector	2019 Exports	2024 Exports	Decline	Key Issues
Food & Drink	£13.2bn	£8.7bn	-34.1%	Certificates, labelling
Manufacturing	£145bn	£128bn	-11.7%	Rules of origin
Services	£89bn	£76bn	-14.6%	Regulatory barriers
Small Goods	£23bn	£18bn	-21.7%	Customs complexity

The Brexit Bureaucracy Burden

For a UK small business seeking EU market access, the path is now blocked by numerous bureaucratic hurdles:

• Export Health Certificates: Costing £500-2000 per shipment.
• Rules of Origin Paperwork: Requiring 40+ hours of documentation.
• Customs Declarations: Costing £200-800 per declaration.
• Regulatory Compliance: Incurring ongoing legal costs.

The administrative burden is crushing. Export Health Certificates, rules of origin paperwork, and complex customs declarations have transformed what was once as simple as “shipping to Stuttgart as to Sheffield” into a bureaucratic nightmare. One large manufacturer reported a £19 million increase in operational costs from paperwork alone. For smaller firms without dedicated compliance teams, EU trade has simply become unviable.

Food and drink exports to the EU have fallen 34.1% compared to 2019 levels. The sector faces potential £150 million implementation costs for new labelling requirements, plus £250 million in annual ongoing costs. Many small specialty food businesses report EU suppliers refusing to deal with UK companies due to paperwork complexity. The promised “Brexit dividend” has become a permanent tax on international trade.

Digital transformation: forced march to nowhere

The government’s digital agenda imposes substantial costs while delivering questionable benefits. Making Tax Digital alone costs participating businesses £4,562 annually – 54% more than non-participants spend on tax compliance. The promise of “efficiency” rings hollow when businesses must purchase expensive software, train staff, and maintain digital records for previously simple processes.

Digital Transformation Cost Breakdown for Small Business

• Annual MTD Software: £600-1,200
• Cyber Essentials: £2,000
• Website Compliance: £5,000
• E-invoicing: £1,200
• Training & Support: £3,000-8,000
• Total Annual Digital Costs: £11,800-£17,400

Cybersecurity Mandate Costs

Requirement	One-time Cost	Annual Cost	Compliance Rate
Cyber Essentials	£2,000	£500	23%
Professional Assessment	£5,000	£2,000	12%
Website Accessibility	£5,000	£1,000	34%
Staff Training	£3,000	£1,500	45%

Cybersecurity requirements add another layer of cost and complexity. With 50% of UK businesses suffering cyber attacks in 2024, the new Cyber Security and Resilience Bill will mandate additional protections – at an estimated cost of £2,000-10,000 for professional assessments plus ongoing monitoring. Website accessibility requirements under WCAG standards require £2,000-15,000 in remediation costs for existing sites.

The cumulative burden is staggering. A typical small business faces:

• MTD software: £50+ monthly
• Cyber Essentials certification: £2,000 annually
• Website accessibility compliance: £5,000 one-time plus ongoing monitoring
• E-invoicing systems: £100+ monthly
• Professional support for implementation: £5,000-15,000

Environmental regulations: good intentions, crushing costs

Net zero commitments translate into complex reporting requirements that small businesses struggle to understand, let alone implement. Large companies increasingly require suppliers to report Scope 1, 2, and 3 emissions – a technical challenge beyond most small firms’ capabilities. Carbon footprint assessments cost £2,000-10,000, with annual reporting adding £1,000-5,000 in ongoing costs.

The Streamlined Energy and Carbon Reporting (SECR) requirements, while exempting the smallest businesses, catch many growing firms in expensive compliance obligations. One manufacturing client with 35 employees faces £8,000 annual SECR reporting costs plus £25,000 for recommended energy efficiency improvements – for minimal actual environmental benefit given their small scale.

The disconnect between policy ambition and practical reality is stark. A small business producing perhaps 0.001% of UK emissions faces the same reporting complexity as a major corporation, without the resources to manage it effectively. Many report losing contracts because they cannot afford carbon certification demanded by large customers.

Employment law changes that discourage employment

The Employment Rights Bill 2024 represents the most significant change in 30 years, with government estimates of £5 billion annual cost to businesses. For small employers, the changes create a minefield of potential liability that actively discourages hiring.

Employment Rights Bill 2024: Impact on Small Business Hiring

Employment Rights Changes

• Day-1 Unfair Dismissal (affecting 9 million workers)
• Enhanced Flexible Working Rights
• Extended Family Leave
• Fire & Rehire Restrictions

Small Employer Response

• 33% Plan Staff Reduction
• 45% Implementing Hiring Freeze
• 28% Switching to Contractors

Small Business Employment Intentions Survey

Response to New Employment Laws	2023	2024	2025
Plan to reduce staff	17%	25%	33%
Hiring freeze implemented	23%	34%	45%
Increase contractor use	15%	22%	28%
Consider business closure	8%	12%	18%

Minimum Wage + NI = Employment Crisis

• 2024 Total Cost (Full-time Minimum Wage Worker): £24,000
• 2025 Total Cost (Full-time Minimum Wage Worker): £27,500
• Impact: A £3,500 increase per worker, representing a 14.6% cost increase.

Day-one unfair dismissal rights will affect 9 million workers while removing employers’ ability to assess suitability during probation periods. Combined with restrictions on fire-and-rehire practices, enhanced flexible working rights, and extended family leave, the cumulative effect is paralysing. 33% of small employers now expect to reduce staff numbers, up from 17% last year.

While the minimum wage increase to £12.21 per hour is welcome for workers, it combines toxically with the National Insurance increase. A full-time minimum wage employee now costs an employer approximately £27,500 annually, up from £24,000. For labour-intensive businesses like hospitality or care, this represents an existential threat. Multiple clients report they will simply stop hiring, accelerate automation, or close entirely rather than navigate the new landscape.

The postcode lottery of business support

Regional variations create a deeply unfair system where business success increasingly depends on location. Scottish businesses with properties under £51,000 rateable value pay the lowest business rates in the UK, while Welsh businesses face the highest multiplier at 56.2p. Planning permission approval rates vary from 80% in London to 91% in the North East – an 11% difference that can determine whether a business can expand.

Regional Business Rate Variations Across UK

Business Rates Multiplier (pence per £)

• Scotland: 49.8p
• England: 54.6p
• Wales: 56.2p
• Northern Ireland: 53.1p

Planning Permission Success Rates

• London: 80%
• South East: 85%
• North West: 87%
• North East: 91%

Investment Distribution vs Business Population

Region	% of UK Businesses	% of Equity Investment	Investment per Business
London	23%	63%	2.7x average
South East	18%	15%	0.8x average
North West	12%	8%	0.7x average
Scotland	9%	6%	0.7x average
Wales	5%	2%	0.4x average

Coastal Communities: The Forgotten Economy

Employment Change in Coastal vs Non-Coastal Areas

Area Type	Change	Percentage
Coastal	Decline	50%
	Growth	25%
	Stable	25%
Non-Coastal	Decline	37%
	Growth	35%
	Stable	28%

Coastal Revival Fund Reality Check:

• Total Fund: £3 million
• Per Community Team: £250,000
• Staff Possible: 2 support workers per area
• Impact: Minimal vs scale of challenge

The closure of Local Enterprise Partnerships in April 2024 created a support vacuum in many regions. Areas with Combined Authorities like Manchester maintain coordinated business support, while others rely on stretched local authority resources. London receives 63% of equity investment despite having only 23% of UK businesses. This isn’t levelling up – it’s entrenching disadvantage.

Coastal communities face particular challenges, with 50% experiencing employment decline compared to 37% in non-coastal areas. The promised “Coastal Revival Fund” of £3 million works out to just £250,000 per Coastal Community Team – barely enough to employ two support workers, let alone transform local economies.

When policies contradict themselves

Perhaps most frustrating is how government policies actively work against each other. The government promotes business growth while implementing tax changes that penalise success. They encourage environmental responsibility while making compliance unaffordable for small firms. They claim to support exports while maintaining Brexit barriers that make EU trade unviable.

Data protection requirements conflict with anti-money laundering obligations, forcing businesses to simultaneously protect and disclose customer information. Digital transformation mandates assume technical expertise and infrastructure that many small businesses lack. Regional development promises clash with the reality of withdrawn funding and closed support services.

One client summarised the situation perfectly: “The government says it wants us to grow, export, go green, and create jobs. But every policy they implement makes those things harder and more expensive. It’s like they’re pressing the accelerator and brake simultaneously.”

The hidden mental health crisis

Behind the statistics lies a mental health crisis among small business owners that rarely makes headlines. The combination of financial pressure, regulatory complexity, and uncertain future takes a devastating toll. Clients who once spoke enthusiastically about growth now focus solely on survival. Many work 70-hour weeks just to stay afloat, sacrificing family time and health to navigate ever-increasing requirements.

The isolation is palpable. When every government announcement seems to bring new costs or obligations, when support schemes prove inaccessible, when larger competitors can absorb costs that destroy smaller rivals, the psychological burden becomes overwhelming. I’ve seen too many previously successful business owners simply give up, closing profitable enterprises rather than face another year of regulatory assault.

What small businesses actually need

After working with hundreds of small businesses through these challenges, the solutions are clear – if only government would listen:

Policy Solutions Roadmap

IMMEDIATE RELIEF NEEDED

• Reverse/Modify NI Increase
• One In, Two Out Regulation
• Small Business Exemptions
• Single Government Portal
• Real Compliance Funding

STRUCTURAL REFORMS

• Cumulative Impact Assessments
• SME Representation on Policy Bodies
• Regional Fairness in Rates
• Simplified Tax System
• Large Company Compliance Protection

EFFECTIVE SUPPORT

• Grants Not Loans
• Free Professional Advice
• Realistic Implementation Times
• Plain English Guidance
• Local Accessible Support

Cost-Benefit Analysis: Policy Reform Investment

Reform Area	Implementation Cost	Annual Savings to SMEs	ROI Timeline
NI Threshold Restoration	£2bn revenue loss	£15bn cost reduction	Immediate
Regulatory Simplification	£50m programme cost	£8bn compliance saving	18 months
Digital Support Grants	£500m fund	£3bn efficiency gains	2 years
Single Portal Development	£100m build cost	£2bn admin savings	3 years

Small Business Survival Requirements

• SME Survival
  • Financial Relief
    • NI Rate Reduction
    • Simplified Tax System
    • Real Grant Funding
  • Regulatory Sanity
    • Impact Assessments
    • Exemption Thresholds
    • Clear Guidance
  • Regional Fairness
    • Equal Business Rates
    • Distributed Investment
    • Local Support
  • Employment Flexibility
    • Probation Periods
    • Graduated Rights
    • Hiring Incentives

Immediate relief needed:

• Reverse or significantly modify the National Insurance increase for small employers
• Implement a true “one in, two out” regulatory reduction policy
• Create a small business exemption threshold for complex regulations
• Establish a single portal for all government interactions
• Provide real funding for compliance costs, not just loans or matched funding

Structural reforms required:

• Cumulative impact assessments before implementing any new policy
• Small business representation on all policy-making bodies
• Regional fairness in business rates and support distribution
• Simplified tax system with fewer cliff edges and thresholds
• Protection from large company supply chain compliance requirements

Support that actually helps:

• Grants, not loans, for essential compliance and digital transformation
• Free professional advice for regulatory compliance
• Realistic timescales for implementing changes
• Clear, plain English guidance designed for non-specialists
• Local, accessible support rather than online-only services

The path forward requires honesty

The UK’s 5.5 million small businesses – down from 6 million in 2020 – remain the backbone of our economy. They employ millions, serve local communities, and drive innovation. Yet current policies treat them as either large corporations in miniature or revenue sources to be squeezed.

UK Small Business Decline: The Hidden Crisis

• 2020: 6.0M SMEs
• 2021: 5.8M SMEs
• 2022: 5.7M SMEs
• 2023: 5.6M SMEs
• 2024: 5.5M SMEs

Net Loss: 500,000 Businesses, leading to:

• Lost Jobs: ~2.5M
• Reduced Innovation
• Community Impact

Small Business Economic Contribution

UK Private Sector Employment by Business Size

Business Size	Percentage of Employment
SMEs (0-249 employees)	61%
Large Businesses (250+)	39%

SME Economic Impact:

• 61% of private sector employment
• 52% of private sector turnover
• £2.3 trillion annual contribution
• 99.9% of all UK businesses

Policy Impact Timeline: From Support to Survival

Government Policy Impact on Small Business

Section	Task	Status	Start Date	End Date
Tax Burden	Brexit Implementation	Done	2021-01-01	2023-12-31
	NI Rate Increase	Active	2025-04-01	2026-03-31
	MTD Rollout	Active	2024-04-01	2027-04-01
Regulations	Employment Rights Bill	Active	2024-10-01	2025-12-31
	Digital Requirements	Active	2025-01-01	2026-12-31
	Environmental Rules	Active	2024-06-01	2027-06-01
Business Confidence	High Confidence	Done	2020-01-01	2021-12-31
	Declining Confidence	Done	2022-01-01	2024-03-31
	Crisis Confidence	Active	2024-04-01	2025-12-31

The government must acknowledge the cumulative impact of its policies and take urgent action to reduce the burden. This isn’t about political ideology – it’s about economic survival. Without significant change, we risk losing the entrepreneurial spirit that drives economic growth and community prosperity.

As I prepare another client’s accounts showing losses driven entirely by policy-imposed costs, I wonder how many more will survive another year. The answer depends on whether government finally matches its pro-business rhetoric with genuinely supportive policies. Time is running out.