The Federation of Small Businesses (FSB) has issued a stark warning that an 'April costs crunch' could undo recent improvements in small business confidence, as multiple regulatory changes take effect this month.

Wave of Cost Pressures Hits Small Firms

New measures including increases to the National Living Wage, expanded statutory sick pay rules, Making Tax Digital for Income Tax, and higher dividend taxes are driving up expenses for small businesses. A total of 87% of firms reported costs rising compared to last year, with 26% facing double-digit increases. Taxation led the drivers at 58%, followed closely by labour costs (56%) and utilities (53%).

These pressures come amid weakening revenues, with over half of small firms seeing incomes fall in the past three months, compared to just a quarter reporting gains. Looking ahead, 45% expect further declines, prompting more businesses to plan staff cuts (21%) than hires (8%). In the last quarter, 23% reduced headcount while only 8% expanded.

Broader Economic Context Amplifies Strain

The FSB's alert aligns with other recent surveys highlighting fragile business sentiment. The British Chambers of Commerce reported labour costs as the top concern for 73% of firms, with energy close behind, even as 49% anticipate turnover growth amid global turmoil including Middle East tensions.

Similarly, S&P Global data showed UK business activity slowing sharply in March, with the composite PMI dropping to 50.3 from 53.7, nearing stagnation due to rising costs and investment delays linked to Mideast conflicts. Services PMI fell to 50.5, the lowest since April 2025, while input cost inflation hit an 11-month high.

Calls for Government Action

Late payments exacerbate the challenges, affecting 69% of small firms. The FSB urges the government to include late payment legislation in the King’s Speech on 13 May, empowering the Small Business Commissioner to fine persistent offenders. It also calls for a pledge to freeze further dividend tax rises for the rest of Parliament.

Tina McKenzie, FSB policy chair, emphasised the precarious position of small businesses navigating these compounded pressures.