15th Report – Small business strategy

Key findings

• Late payments close 38 UK businesses daily; SMEs are owed £22.7–£112 billion in unpaid invoices, with 44% of invoices paid late. Payment delays of 60–90 days are routine in construction, turning small firms into involuntary lenders.
• Government procurement of £341 billion in 2023/24 reaches only 20% (£45.4 billion) to SMEs; if directed 30% to SMEs, additional £22.7 billion annual cashflow would result. Departmental targets lack central accountability and are unlikely to drive meaningful change.
• The tax system imposes 242 million compliance hours and £25 billion annually on small businesses. VAT thresholds discourage growth; Business Rates are unfit—based on property values not turnover, hitting smaller firms harder. Autumn Budget 2024 added £25,000 annually to hair and beauty sector costs.
• Energy costs push viable firms to closure; sub-postmasters saw bills rise 50%+ since 2022, equivalent to losing one–two staff salaries. Nine in ten hair and beauty businesses report energy costs directly eroding margins.
• Retail crime costs £4.2 billion; shop theft is routine, adding 10p per convenience store transaction. Vacant high streets lose 38 stores daily. Weak enforcement, under-resourced Trading Standards, and missing leadership allow crime to hollow out town centres.
• Employment costs rising faster than revenues; firms cannot pass costs to consumers (ceiling reached: £5 coffee, £7 pint, £100 haircut). Skills system is confusing and constrains hiring and productivity for SMEs.
• Business support landscape is fragmented; SMEs lack formal cross-Whitehall engagement mechanisms and face overlapping regulation with no clearing house for conflicting rules.

Recommendations

• The Government should set a 30% target for total direct spend with SMEs, to be achieved by 2028, with departmental contributions monitored and reported to Parliament annually, including underperformance remedial plans.
• Appoint a Procurement Council of Experts to gather SME feedback on procurement processes and advise departments on best practice to drive culture change.
• Accelerate late payments legislation to mandate 30-day payment terms by end of Parliament; update procurement rules to require all large suppliers to hold Fair Payments Code Gold award.
• Integrate Fair Payments Code information with Companies House register to provide SMEs clearer intelligence on contractor payment practices.
• Amend the Procurement Act 2023 to require Project Bank Accounts for all construction projects costing £2 million and above; reissue construction playbook to end the 'unless compelling reasons' loophole and introduce liability caps as contract conditions.
• Reform Business Rates system to relate to firms' ability to pay rather than property values; lower VAT compliance costs; simplify tax system to reduce burden and cliff edges.
• Improve SME access to skills system; provide tailored energy relief and ensure transparent, fair energy market protections for small businesses.
• Strengthen crime prevention enforcement: resource Trading Standards adequately, give police clear leadership priorities on business crime, and ensure smaller firms do not bear disproportionate costs.
• Establish formal mechanisms for SME cross-Whitehall engagement; create clearing house for reporting conflicting regulation across departments.
• Deliver national support framework for fragmented SME business support landscape; improve data on SMEs (Standard Industrial Classification codes, definition clarity) to inform evidence-based policy.

Key actors

Liam Byrne, Blair McDougall, Andrew Goodacre, Paul Brain, Brian Berry, British Chambers of Commerce, Federation of Small Businesses, Federation of Master Builders