UK small and medium-sized enterprises (SMEs) are being squeezed harder than ever in 2025 as operating costs continue to climb. Persistent inflation, surging energy bills, and heavier tax burdens are combining to put margins under unprecedented strain. The British Chambers of Commerce (BCC) reports that 36% of SMEs now cite rising costs as their single greatest barrier to growth, with UK inflation standing at 2.7%—the highest in the G7.
The April 2025 Budget added further weight to the burden. The government’s decision to raise employer National Insurance Contributions (NICs) from 13.8% to 15% will, according to the Confederation of British Industry (CBI), add £2 billion annually to SME costs.
“These tax rises risk choking off investment and growth for smaller firms already stretched thin,” said Rain Newton-Smith, CBI Chief Executive. Source: https://www.cbi.org.uk/
For customer-facing sectors like hospitality and retail, the impact is already visible. A Leeds café owner reported a 20% increase in energy bills, forcing price hikes that risk driving customers away. Across the country, SMEs are turning to strategies such as bulk purchasing, switching suppliers, or investing in energy-efficient equipment. Yet many of these cost-saving initiatives require upfront investment, which for cash-strapped firms is simply unrealistic.
The government has announced a £100 million SME support fund, but businesses complain of slow and bureaucratic processes in accessing grants. Newton-Smith warned: “SMEs are the backbone of the UK economy, yet they’re being squeezed from all sides.”
Regional disparities also matter. SMEs in high-cost areas such as London and the South East face even tougher conditions than those in smaller towns or rural areas, where overheads are lower. This uneven playing field risks hollowing out entrepreneurial activity in the capital, traditionally the UK’s growth hub.
Without swifter relief, the fear is not just reduced profitability but closures, particularly for businesses operating on thin margins. For many SME owners, the next year will require resilience, creativity, and careful financial management to navigate what looks to be a prolonged period of pressure.