Small businesses are bracing for what they describe as an “unprecedented cost crunch” in April, with more than a third warning they may shut down or scale back operations as a raft of higher expenses take effect.
The Federation of Small Businesses (FSB) has written to Rachel Reeves warning that the cumulative impact of rising energy bills, business rates, higher employment costs and changes to statutory sick pay risks undermining economic growth.
A survey by the FSB found that 35 per cent of small firms plan either to close or reduce output over the coming year in response to increased energy standing charges, a rise in the national living wage and higher dividend tax rates.
Tina McKenzie, the FSB’s policy and advocacy chair, said the burden of new costs would directly affect firms’ ability to invest. “Running a small business is about to get a lot more expensive,” she wrote. “If profits are squeezed by government policy, businesses cannot grow.”
The FSB estimates that an employer with nine staff paid at the national living wage will see annual employment costs increase by £25,850 between January and April 2026, a 12.9 per cent jump.
It also calculates that a typical small shop or restaurant will see business rates rise from £4,790 to £5,590 this year, while changes to dividend tax, a common way for owner-managers to draw income, will cost an additional £578 annually on earnings of £50,000.
The removal of the lower earnings limit for statutory sick pay is expected to add further pressure. The FSB estimates the change will cost a nine-employee firm around £990 a year.
Jane Wiest, who runs Initially London, a retailer specialising in monogrammed products, said improving sales had been overshadowed by higher taxes and operating costs.
“We had a strong January, but then these taxes started to hit,” she said. “You’re trying to work out how the money coming in will cover the expenses going out. It makes it hard to hire or invest because you’re carrying this constant burden.”
Sarah Curtis, who operates a historic boatyard in Ipswich, said rising wages and utility bills were making recruitment increasingly difficult.
“There are so many small increases, utilities, wages, rates, and they all add up,” she said. “Small businesses are very reluctant to take on anyone new.”
The FSB argues that the combined effect of cost increases risks deterring hiring and curtailing expansion plans at a time when policymakers are seeking to boost economic growth.
While ministers have defended the measures as necessary to improve worker protections and fund public services, business leaders warn that smaller firms, often operating on tighter margins and with limited access to affordable finance, are particularly exposed.
With April approaching, small employers say they face a stark choice: absorb higher costs, raise prices or pull back on activity, each with potential consequences for jobs and local economies.
