Small Businesses Sound Alarm Over Unprecedented April Cost Surge
Small businesses across the United Kingdom are bracing for what industry leaders describe as an "unprecedented cost crunch" this April, with alarming new data revealing that 35 per cent of employers are planning to either shut down operations or significantly reduce their output. The Federation of Small Businesses (FSB) has issued a stark warning to Chancellor Rachel Reeves, highlighting a dangerous convergence of rising financial pressures that threaten to push countless firms over the edge.
Multiple Financial Pressures Converge
The FSB's urgent communication outlines a perfect storm of escalating costs set to hit small enterprises. Key factors include soaring energy standing charges, imminent business rate increases, higher employment costs, and upcoming changes to statutory sick pay regulations. This combination, according to the federation, creates a precarious environment where many small businesses may struggle to survive.
Parallel research from the British Retail Consortium (BRC) reveals that 61 per cent of retail finance chiefs are planning to reduce staff hours and overtime, while 45 per cent expect to freeze recruitment entirely. These decisions stem from growing concerns about rising employment costs and new workers' rights legislation. Finance brokers report mounting anxiety among their small and medium-sized enterprise (SME) clients, with many expressing deep uncertainty about their future viability.
Broker Data Shows Escalating Concerns
According to Iwoca's latest SME expert index, 58 per cent of brokers now identify increased running costs as the primary concern for small business owners. This figure has risen sharply from 48 per cent in the third quarter of 2025 and represents the highest level recorded since the survey began in 2022. Notably, 33 per cent of brokers specifically cited the upcoming minimum wage increase as having the most negative impact on small firms. Increases to dividend tax rates ranked as the second biggest concern, followed closely by business rates reform.
Demand for Financial Support Rises Dramatically
The financial strain is driving increased borrowing among small businesses. Three-quarters (74 per cent) of brokers now expect SME borrowing to increase over the next six months, up from 66 per cent in the previous quarter. Iwoca's SME lending thermometer, measured on a scale of one to ten, rose to 5.98 in the fourth quarter of 2025 from 5.15 in the third quarter.
Giovanni Contratti, director of the broker channel at Iwoca, commented: "Small businesses are clearly feeling the pressure of rising costs, and the further Government-mandated cost increases in April will add to that burden. Demand for finance is growing as businesses look to invest and continue growing despite these challenges."
Parliamentary Committee Highlights Cumulative Pressures
A recent report by the House of Commons Business and Trade Committee concluded that small firms are operating under cumulative pressures that, in some cases, rival those experienced during the pandemic. The committee's investigation revealed several alarming statistics:
- SMEs were owed £112 billion in unpaid invoices at the end of 2024
- Approximately 38 small suppliers are estimated to close each day due to late payment practices
- Average electricity prices in 2024 remained nearly double their level from three years earlier
- Retail crime is estimated to cost businesses £4.2 billion annually
Innovation and Export Activity Decline
Meanwhile, innovation and export activity among SMEs have fallen to a four-year low, according to the latest State of Small Business Britain report from the Enterprise Research Centre. While 36 per cent of working-age adults are planning to start a business—the highest level on record—the proportion of SMEs reporting product innovation has dropped from 30.4 per cent in 2021 to 24.1 per cent in 2024.
Stephen Roper, director of the Enterprise Research Centre, expressed concern: "The UK has a remarkably resilient and creative entrepreneurial culture. We are seeing a worrying decline in innovation and exporting, which could have long-term implications for economic growth and competitiveness."
As April approaches, small business owners face difficult decisions about their future operations, with many contemplating reductions or closures as the only viable response to mounting financial pressures.
