tl;dr
A Federation of Small Businesses (FSB) survey reveals 33% of UK small firms fear closure or selling operations in 2025, driven by tax hikes, inflation, and rising costs. Business confidence hit a 10-year low with an Institute of Directors (IoD) score of -74, while homebuilders anticipate 40% fewer h...
**UK Small Business Confidence Plummets Amid Tax Fears and Economic Uncertainty**
A new survey has revealed a sharp decline in confidence among UK small businesses, with concerns over rising taxes and economic pressures fueling fears of widespread closures and downsizing. The Federation of Small Businesses (FSB) reported that nearly 33% of small companies anticipate reducing staff, selling operations, or shutting down in the next year, while only 18% plan to expand. This bleak outlook, attributed to weak growth, high taxation, and soaring employment costs, signals a troubling shift in the business landscape.
**A Vicious Cycle of Decline**
Tina McKenzie, policy chair at the FSB, warned that the downward trend could trigger a "vicious cycle" of reduced spending, lower tax revenues, and increased state support. "Millions of small businesses shrinking, closing, or selling up instead of growing means a downward spiral of lower tax take, higher unemployment, and greater demands on the state," she said. The survey underscores a growing anxiety among entrepreneurs, who are increasingly prioritizing survival over expansion.
**Homebuilding Hits a Roadblock**
The uncertainty surrounding the UK budget, particularly the planned tax increases, is also casting a shadow over the construction sector. A Knight Frank survey of 60 homebuilders found that over 40% expect housing starts to decline in the final quarter of 2025, as firms delay decisions until after the November 26 budget. The broker warned that tax ambiguities could prolong delays into 2026, further jeopardizing the government’s housing targets.
**Business Confidence Reaches a New Low**
The Institute of Directors (IoD) reported a business confidence index score of minus 74 in September, the lowest in over a decade. A survey of 1,500 business owners revealed that insolvencies in the first nine months of 2025 matched those of 2023, a three-decade high. While voluntary liquidations dominated, the data highlights the financial strain on small firms. Anna Leach, IoD chief economist, noted that rising wage costs—cited by 83% of business leaders as the main cause of declining confidence—were driving the crisis.
**Taxation Concerns Extend to the Working Population**
The pressure is not limited to businesses. Prime Minister Keir Starmer has not ruled out potential tax hikes, including increases in income tax, national insurance, or VAT, signaling the government’s struggle to balance the books. This has left the broader working population bracing for heavier financial burdens, compounding the economic uncertainty.
**Inflation and Monetary Policy Uncertainty**
While inflation has eased, the Bank of England (BoE) cautioned that the cooling process may be slower than expected. Deputy Governor Clare Lombardelli warned that food price pressures could prolong inflation into 2026. However, some policymakers remain divided. While Catherine Mann of the Monetary Policy Committee (MPC) sees a chance for further rate cuts, Sarah Breeden predicted inflationary pressures would not persist beyond 2026.
**A Call for Pro-Growth Policies**
The IoD has urged Chancellor Rachel Reeves to prioritize business growth in the November budget, emphasizing the need for measures to alleviate cost pressures. With businesses and developers alike awaiting clarity, the path forward remains fraught with challenges.
As the UK navigates these economic headwinds, the interplay of taxation, inflation, and policy uncertainty risks deepening the crisis. For small businesses, the road to recovery may be long—and the stakes have never been higher.