Committee publication · Report · 7 July 2026 · HC 122

7th Report - Small business strategy: Government Response

Summary

The Business and Trade Committee responds to the Government's reply to its February 2026 small business strategy report. The Committee criticises the Government for accepting only 6 of 36 recommendations, finding the response inadequate given mounting pressures on SMEs including 40% energy standing charge increases, 52% business rates rises in retail/hospitality/leisure, and widespread job losses in high street sectors.

Key findings

Government accepted only 6 of 36 Committee recommendations, relying on pre-existing schemes rather than substantive new action
Small businesses face cumulative cost crunch: 40% energy standing charge increases (April 2026), 52% average business rates rises over three years in key sectors, and rising minimum wage and SSP costs
Procurement targets lack accountability mechanisms—departments fell 8.4 percentage points below required levels in 2025, with no consequences for failure specified
Government rejected online sales tax consideration (based on 4-year-old consultation) and VAT restructuring, leaving disparity between online and bricks-and-mortar business costs unaddressed
Franchising response deemed a complete failure to engage—Government simply restated existing commitments with no discussion of statutory code of conduct or franchisee protections

Recommendations

Government must establish clear accountability and consequences for departments failing procurement targets, not merely publish annual data
Mandate 30-day payment terms across private sector economy, not 60 days, as 60 days is unsustainable for small businesses
Conduct fundamental reform of business rates system to level playing field between online and bricks-and-mortar retailers; reject assumption that current increases are adequate
Reconsider rejection of online sales tax and present Parliament with options for VAT restructuring to optimise small business and employment growth
Reduce administrative costs of tax compliance by 25% by end of Parliament; provide more responsive telephone service from HMRC to SMEs
Quickly publish detailed consultation on moving towards single employment status framework (manifesto commitment), not merely 'targeted consultation'
Conduct review of franchising landscape and consider statutory code of conduct with independent enforcement mechanisms; re-engage substantively with this issue
Develop coherent, cross-departmental small business strategy acknowledging cumulative burden of disparate policy decisions across departments

Government position

The Government partially accepts the Committee's critique, acknowledging SME challenges but defending most policy positions. On procurement, it argues individual departmental targets (with £7.4bn annual spending by 2028) are preferable to central targets and highlights first-time accountability. On late payments, it welcomed acceleration of legislation with 60-day maximum terms and enhanced Small Business Commissioner powers. On energy, the Government reiterates existing support schemes without addressing ineligible sectors. On employment status, it commits only to a 'targeted consultation' rather than the manifesto's 'detailed consultation' on single worker status. On tax compliance, it claims MTD for VAT shows benefits but provides no committed 25% reduction target. On franchising, the Government merely restates commitment to current regime and existing plans, offering no engagement with statutory code proposal. Across most areas, the Government defends status quo with reference to existing initiatives rather than acknowledging need for fundamental reform.

Tone

Critical

Topics

small-business-policypublic-procurementtax-reformenergy-costsemployment-law

Key actors

Liam Byrne, Business and Trade Committee, Department for Business and Trade, Peter Kyle (Secretary of State for Business and Trade), Federation of Small Businesses, Home Office, HMRC, Shirley Cooper (SME Crown Representative)

Notable line

“We remain firmly of the view that the Government must take further action to ease these pressures.”

Key Quotes

“The Government has only fully accepted six out of the 36 recommendations we made. In several areas its response relies on pre-existing schemes and commitments. This is inadequate .”
— Business and Trade Committee · Overall assessment of government response

“Throughout our inquiry, small businesses described the cumulative burden of disparate policy decisions taken by departments with no regard for their combined impact on SMEs.”
— Business and Trade Committee · On cross-departmental coordination failures

“Without clear consequences for failure, procurement targets risk becoming aspirations rather than a serious commitment to transforming small business cashflow.”
— Business and Trade Committee · On accountability gap in procurement spending targets

“Small business owners told us repeatedly that 60 days was too long to wait.”
— Business and Trade Committee · On private sector payment terms

“"It might be as it is today where, unfortunately, you have hairdressers, pubs and dentists subsidising energy-intensive industries".”
— Adam Berman, Energy UK · On cost of energy levies exemptions

“We therefore ask that the Government re-visit both its response to the Committee and carry out a review of whether a statutory code of conduct is required.”
— Business and Trade Committee · On franchising response failure

“When we published our report in February 2026, we found that SMEs faced cost pressures equivalent to the Covid-19 pandemic. In the months since these pressures have been exacerbated significantly …”
— Business and Trade Committee · In conclusion, on worsening trajectory without action

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Source · parliament.uk record ↗