Policy paper identifies small business cost pressures
Small Business: Costs Analysis
FSB analysis of escalating costs hitting small businesses in 2026
In April 2026, small businesses and self-employed people will be hit by a combination of rising costs, from business rates to employment costs and higher energy bills, among others. This paper from FSB's Policy team sets out the situation, and suggests solutions.
Small business confidence is languishing at -71 points, which is the second-lowest confidence reading recorded in the history of FSB’s Small Business Index. This low confidence score can be attributed, in large part, to the fact that business costs have been rising at an unprecedented rate over the past few years.
Since 2014, on average, 69 per cent of small businesses reported costs were rising in response to FSB’s quarterly confidence survey. Yet since 2022, this figure has climbed to an average of 85%, as a range of cost lines have risen rapidly.
The percentage of small firms reporting a greater than 10 per cent annual increase in costs, has also been stubbornly high since 2022. Going back to 2014, on average 14 per cent of firms reported a greater than 10 per cent annual increase in costs, but in the past four years this has risen to 28 per cent on average.
Cost increases compound over many years, and erode profit margins, in turn leading to lower investment and lower growth. The following chart shows the key drivers of these rising costs, as reported in Quarter 3 and Quarter 4 of 2025.
In the past four years, while costs have been rising at an unprecedented rate, the number of firms reporting decreasing revenues has overtaken the number of firms reporting increasing revenues.
As a result of rising costs and revenues failing to keep pace, we now face a situation where more small firms expect to contract over the coming year (35%) than expect to grow (21%). 2025 was the first time in the SBI’s history that this occurred.
With various cost lines set to once again rise substantially in April 2026, this paper outlines some of those upcoming cost pressures, and proposes policy solutions that would alleviate these pressures.
