Rising costs force businesses to delay growth, according to EDF research
A survey published by Enterprise Nation in partnership with Square and EDF Business found that rising and compounding costs are forcing Britain’s small businesses to shrink.
The survey, which featured 526 UK small businesses, found that 69 per cent of small businesses have delayed or cancelled growth in the past year, and half cut investment. VAT was reported as the single heaviest pressure at 29% with wages following at 24%.
Other factors such as National Insurance, business rates, supply costs and energy also impacted growth, according to respondents.
Six in ten businesses put VAT in their top three pressures, and nearly two-thirds (64 per cent) now see the UK as a harder place to operate than its European peers.
High street businesses have been hit the hardest, with 77 per cent reporting delayed growth. One in five owners also said that over a quarter of nearby shopfronts stand empty.
Victoria Cozens, co-founder of Perky Blenders, said that two years ago her business was en route to expand but once government changes came in growth became stagnant.
“Changes came in: Employers National Insurance (ENI), related wage increases, and more recently the extraordinary increase in business rate costs, especially for hospitality,” she said.
ENI alone has risen by over £20,000 annually since 2024. “We’ve always tried to pay above the minimum wage for our barista roles. With the increases in costs across the business, especially ENI, it has been hard to support the people we care about the most,” she said.
The company previously employed specialists across marketing, customer service, website management and fulfilment, those roles are now covered by Victoria and the wider team.
“You can be an owner-operator and find ways to make it work,” Cozens said. “But if you want to operate multiple sites, grow your business and employ more people, that has become so much more challenging.”
Businesses are demanding that the standard rate of VAT be reduced as well as lower business rates and reduced employer National Insurance.
However, the survey suggests a VAT cut would be banked rather than passed on to customers. Businesses said they would first use their savings to absorb other rising costs (46 per cent) and reinvest in the business (44 per cent), well ahead of hiring (29 per cent) or cutting prices (23 per cent).
“This data shows a small business community that has done everything asked of it and is still being ground down by cost after cost stacking up at once,” said Aaron Asadi, CEO of small business support platform and membership community Enterprise Nation.
Energy remains a significant but poorly managed cost. Businesses that could estimate the impact said rising energy bills had cut margins by around 18 per cent on average. Yet three-quarters (75 per cent) are unaware of efficiency grants or reliefs available to them, and 69 per cent did not know the rule of thumb that cutting energy costs by 20 per cent can boost the bottom line as much as a 5 per cent rise in sales.
The survey also found that businesses are not confident about their cash flow. They are far more likely to have delayed growth (86 per cent, against 50 per cent of confident businesses), cut investment (62 per cent) and even considered closing altogether (48 per cent, against 12 per cent). Card and digital payments dominate, and only 2 per cent of businesses are paid mostly in cash.
Robert White, Executive Director and Head of Payment Partnerships, Square UK, said: “The small businesses on the front foot are those with the clearest sight of their money and quickest access to capital.”
“This is where Square helps, with payments and lending judged on real sales and investment potential. Alongside the policy changes this report recommends, that is how growth on hold starts moving again,” he said.
The report makes six recommendations to government:
- Decide on hospitality VAT at the Budget on 28 October, and design any cut around what businesses said they would do with it
- Raise the Small Business Rate Relief thresholds, and pilot payments to landlords who re-let empty shops
- Pay the next round of cost support as flat grants through councils
- Fund enforcement of the late payment law, and name the businesses that break it
- Back more small business lending through non-bank and community lenders
- Roll out the West Midlands Business Energy Advice Service across England
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