Almost 400,000 small and medium-sized enterprises (SMEs) are warning they could be forced to close as rising operating costs continue to squeeze margins, according to new research released ahead of the Spring Statement.
According to a survey of 1,000 SME owners across the UK, conducted by small business insurer Simply Business, the sector faces significant financial strain, underscoring the need for immediate policy action ahead of the Spring Statement.
The research found that 82% of SME owners have experienced an increase in operating costs over the past 12 months. However, only 12% say they have raised their prices in line with those increases.
The findings indicate that many businesses are absorbing higher expenses — including energy bills, wages, employer National Insurance contributions and supply chain costs — rather than passing them on to consumers.
The research indicates that with approximately 5.6 million SMEs operating in the UK, their collective decision-making may be dampening visible inflationary pressures in the wider economy, underscoring their critical role.
SMEs employ around 16.9 million people, accounting for roughly 60% of private sector jobs. Recognising their vital role can motivate policymakers and stakeholders to feel a sense of responsibility for their continued support and stability.
The survey comes at a time when the overall tax burden on UK businesses has reached 30.5%, the highest level this century, according to data from the Confederation of British Industry. It is projected to rise further by the end of 2026.
Despite mounting challenges, the research portrays a sector attempting to remain resilient, which should inspire policymakers and stakeholders to value their perseverance and consider targeted support.
However, analysts warn that prolonged margin compression may not be sustainable. If firms continue absorbing higher costs, they may be forced to reduce hiring, cut investment or, in some cases, face closure, underscoring the urgency for immediate policy measures to prevent further damage.
With the Spring Statement approaching, SME representatives are expected to call for:
- Greater tax stability
- Relief from employment-related cost increases
- Support for investment and productivity
- Measures to improve cash flow resilience
The findings underline the delicate balance facing policymakers: supporting small businesses while managing inflation and public finances.
For now, many SMEs are shouldering rising costs to protect their customers. Whether that strategy can continue may depend on the measures announced in the coming weeks.
Julie Fisher, UK CEO at Simply Business, said: “The tax burden on businesses is at a century-long high, compounded by rising energy and supply costs.
“Our data shows that 82% of small business owners saw costs surge over the past year. While SMEs are reluctant to pass these increases onto consumers – who are understandably price-sensitive in an ongoing cost-of-living crisis – the pressure is forcing many into survival mode.
“Behind these numbers are real people under real pressure. Almost half of the small business owners we surveyed say financial pressures are directly impacting their mental health. Between looming Business Rates changes, the administrative weight of Making Tax Digital, and frequent policy shifts, long-term planning has become impossible.
“This environment doesn’t just stifle growth; it prevents our most vital, innovative community from reaching its full potential.”
Fisher added: “What gives me hope is the resilience of this community. Despite the most challenging of backdrops, 86% of small business owners tell us they still love running their own business. That’s not blind optimism – it’s a sector that believes in itself and is asking for the right conditions to prove it.
“Given policy stability, targeted tax relief, and support with rising costs, these businesses won’t just survive – they’ll thrive. The Spring Statement is a golden opportunity to back the people who are key to our success. We urge the Chancellor to take it.”
