On the eve of Rachel Reeves’ second Autumn Statement, it feels like a good time to reflect on the relationship between the Labour government and Britain’s small and medium-sized enterprises. UK SMEs truly are the backbone of the economy, representing 99% of all businesses and employing over 13 million people[1]. Yet many smaller firms feel the government simply doesn’t understand their realities, with 46% of smaller UK SMEs expressing a lack of confidence that Labour will drive a pro-business agenda[2].
The Growth Promise Versus SME Reality
When Labour swept to power, economic growth was the central plank of their agenda. The UK was the fastest growing economy in the G7 in the first quarter of 2025[3], which sounds encouraging. However, the broader picture tells a different story. Business confidence has fallen for five consecutive quarters, with the Business Confidence Index dropping to -7.3 in Q3 2025[4]. SME confidence has also dipped, with only 20% of small businesses feeling very confident about the next 12 months, a 4% drop from 2024[5].
The government published its Small Business Plan in July 2025, setting out a long-term direction for supporting smaller firms[6]. Yet actions speak louder than policy documents. The October 2024 Budget delivered a record £40 billion in tax rises[7], with the increase in employer National Insurance contributions from 13.8% to 15% hitting SMEs particularly hard[8]. Research from the British Chambers of Commerce found that 82% of firms say this rise will impact their business, with 58% expecting it to affect recruitment and 54% saying it will impact their prices[9].
Tackling the Late Payment Scandal
One area where the government has made positive noises is late payments. Emma Jones CBE, founder of Enterprise Nation, was appointed as the new Small Business Commissioner in June 2025 with a specific focus on tackling this problem[10]. The statistics are genuinely shocking. Research shows that almost two-thirds of invoices sent by UK small businesses in the past year were paid late[11]. The Federation of Small Businesses reports that over 50% of SMEs are struggling with delayed payments[12], and late payments cost the UK economy £11 billion annually, leading to 38 business closures every day[13].
The government has announced intentions to introduce the toughest anti-late payment laws in the G7[14]. That sounds promising, but small businesses need action, not just announcements. A Fair Payment Code was launched in December 2024, with over 300 businesses becoming awardees[10]. Yet the scale of the problem remains enormous. SMEs spend 56.4 million staff hours each year chasing late payments, costing £6.3 billion annually[15].
The Employment Rights Bill Concerns
Labour’s flagship Employment Rights Bill has created significant anxiety among SME owners. The government’s own economic analysis says the total business costs for complying with the new rules could be up to £5 billion annually[16]. Crucially, the analysis acknowledges that costs will be proportionately higher for small and micro businesses due to fixed compliance costs[16].
Combined with the National Insurance increase and the National Living Wage rise to £12.21 per hour[8], many businesses describe this as a triple whammy. ICAEW members report that with the minimum wage at its current level, employees need to start at a certain productivity level to make employment viable, reducing employers’ ability to take a chance on new hires[17]. The British Chambers of Commerce found that 77% of businesses do not feel policy change is moving at the right pace, while 79% believe the impacts of new policies are not being properly assessed[9].
What UK SMEs Actually Want
The message from business owners is remarkably consistent. They want stability, not suspense[18]. They want meaningful tax relief on investment and employment, a genuine simplification of the tax system, and incentives that reward businesses for scaling rather than punishing them as soon as they show momentum[18].
Access to Finance
Finance remains a significant barrier to growth. Nearly a third of SMEs have had to stop or pause an area of their business because of a lack of finance over the past two years[19]. Four out of five SME manufacturers say they struggle to access finance during the critical seed to early growth stages[20]. The government has announced plans to unlock £7 billion of finance for small businesses through its Small Business Plan[21], but the proof will be in delivery.
Reducing Red Tape
The chancellor has announced plans to cut regulatory costs, with reforms projected to save companies nearly £6 billion annually by the end of the parliamentary term[22]. However, the Centre for Policy Studies has raised profound concerns about whether the government is serious about this, noting that ministers are using definitions of regulatory costs that drastically understate the true total[23].
Digital Adoption Support
The SME Digital Adoption Taskforce has set a bold ambition: making UK SMEs the most digitally capable and AI confident in the G7 by 2035[24]. This includes launching a Business Growth Service as a single digital front door for SMEs, connecting them with tailored advice and support[25]. If done properly, this could be genuinely helpful for time-pressed small business owners.
Business Rates Reform
From April 2026, the government plans to introduce permanently lower business rates multipliers for retail, hospitality and leisure properties with rateable values under £500,000[26]. This would replace the annual relief that created a yearly cliff-edge of uncertainty[27]. The reform will be funded by higher rates for very large properties such as online retail warehouses[28]. For struggling high streets, this could provide welcome long-term certainty.
What Should Labour Do Now?
If I were advising the Labour Party on marketing themselves to SMEs, and frankly, this would be quite a challenge, I would suggest some clear priorities:
Stop the Constant Policy Changes
Business confidence requires predictability. Labour promised one major fiscal event per year to allow businesses to plan[29]. Yet the constant speculation about tax rises and the drip-feed of regulatory changes undermines confidence entirely. The Institute for Government notes that Reeves’ iron-clad commitment to fiscal sustainability has translated into policy instability rather than stability[30].
Genuinely Simplify the Tax System
Over a quarter of SMEs want a simpler tax system[31]. The tax burden has increased significantly, with small businesses now accounting for 60% of the tax gap[32]. Rather than adding complexity, the government should focus on making compliance easier and less time-consuming.
Deliver on Late Payments
The Small Business Commissioner role is important, but it needs real enforcement powers. Companies that consistently pay late should face meaningful consequences. The consultation on legislative measures is welcome[11], but small businesses need action within months, not years.
Exempt Micro Businesses from Some Employment Regulations
The Employment Rights Bill analysis acknowledges that most measures need to apply to all businesses to avoid a two-tier workforce[16]. However, there is a genuine case for lighter-touch regulation for the smallest firms. Currently, the costs of defending even a single employment tribunal claim can be disproportionately high for micro businesses[33].
Create Genuine Partnership
The government’s Plan for Change states that it wants to work in partnership with business[34]. Yet 52% of businesses do not understand why new policies are being made[9]. SMEs don’t need platitudes; they need oxygen[18]. That means genuine consultation before policies are announced, not after.
Looking Ahead to the Budget
As Rachel Reeves prepares for her second Autumn Statement on 26 November 2025[35], small businesses will be watching closely. The fiscal challenges are real, with an estimated shortfall of up to £30 billion[36]. Yet every tax rise and regulatory burden has consequences for the 5.5 million small businesses that employ half the private sector workforce[1].
SMEs could add £83 billion to manufacturing GVA over the next decade if given the right support[20]. A 1% productivity uplift across SMEs could add £94 billion annually to GDP[24]. The potential is enormous, but unlocking it requires a government that truly understands what small businesses need: stability, simplicity, and support rather than endless uncertainty and mounting costs.
The backbone of the economy deserves better. Whether the Labour Party can deliver remains to be seen, but on current form, their marketing challenge to SMEs is only getting harder.
References and Further Reading
[1] How the UK’s small businesses keep going against the odds https://www.enterprisenation.com/learn-something/how-uk-small-businesses-keep-going/
[2] 46% of SMEs not confident Government will drive a ‘pro- … https://www.credit-connect.co.uk/news/46-of-smes-not-confident-government-will-drive-a-pro-business-agenda-in-the-budget/
[3] Kickstart economic growth https://labour.org.uk/delivering/economic-growth/
[4] UK Business Confidence Monitor: National https://www.icaew.com/technical/economy/business-confidence-monitor/business-confidence-monitor-national
[5] The New UK Small Business Confidence Report 2025 https://www.sumup.com/en-gb/business-ideas/uk-business-confidence-report-2025/
[6] Backing your business: our plan for small and medium- … https://www.gov.uk/government/publications/backing-your-business-our-plan-for-small-and-medium-sized-businesses
[7] What can we expect in the Autumn Budget? https://www.fidelity.co.uk/markets-insights/personal-finance/personal-finance/what-can-we-expect-in-the-autumn-budget/
[8] The 2024 UK budget: 4 key takeaways for SMEs and … https://www.breathehr.com/en-gb/blog/topic/employment-law/the-2024-uk-budget-4-key-takeaways-for-smes-and-hr-teams
[9] National Insurance Creating ‘Powder Keg of Costs’ https://www.britishchambers.org.uk/news/2025/02/national-insurance-creating-powder-keg-of-costs/
[10] Government appoints Emma Jones CBE as new Small … https://www.gov.uk/government/news/government-appoints-emma-jones-cbe-as-new-small-business-commissioner-to-help-tackle-late-payments
[11] Nearly Two-Thirds of Invoices Paid Late Across the UK https://financialit.net/news/cash-management/sme-cash-flow-crisis-nearly-two-thirds-invoices-paid-late-across-uk
[12] insights from the FSB Late Payments Report 2025 https://www.franciswilksandjones.co.uk/late-payments-crisis-deepens-insights-from-the-fsb-late-payments-report-2025/
[13] Late payments are ‘a fundamental threat’ to small businesses https://www.freeagent.com/blog/late-payments-2025/
[14] UK announces toughest anti-late payment rules in G7 https://www.icaew.com/insights/viewpoints-on-the-news/2025/jul-2025/uk-announces-toughest-antilate-payment-rules-in-g7
[15] New small business commissioner appointed to end late … https://constructionmanagement.co.uk/new-small-business-commissioner-appointed-to-end-late-payments/
[16] Employment Rights Bill: How could it impact small and … https://www.enterprisenation.com/learn-something/employment-rights-bill-small-business-impact/
[17] Employment Rights Bill ‘could overburden businesses’ https://www.icaew.com/insights/viewpoints-on-the-news/2025/apr-2025/employment-rights-bill-could-overburden-businesses
[18] Autumn Budget 2025: The small business measures … https://www.smeweb.com/autumn-budget-2025-the-small-business-measures-entrepreneurs-want-to-see/
[19] Finance Barriers Stall Growth for 1 in 3 UK SMEs https://www.conisterbank.co.uk/news-insight/2025/new-research-finance-barriers-stall-growth-for-1-in-3-uk-smes/
[20] Manufacturing SME scale up could add £83bn to … https://www.makeuk.org/news-and-events/news/sme-manufacturers-growth-ambitions-could-add-ps83bn-uk-economy
[21] Small Business Plan: Government commits to crackdown … https://britishbeautycouncil.com/small-business-plan/
[22] Rachel Reeves unveils plan to cut red tape for business https://www.bbc.co.uk/news/articles/c629z48jjg7o
[23] Axing the Admin? Not Quite… https://cps.org.uk/wp-content/uploads/2025/10/Axing_the_Admin.pdf
[24] SME Digital Adoption Taskforce: final report https://www.gov.uk/government/publications/sme-digital-adoption-taskforce-final-report/sme-digital-adoption-taskforce-final-report
[25] The UK’s Business Growth Service: A Game-Changer for … https://www.1stformations.co.uk/blog/uk-business-growth-service/
[26] Changes to Business Rates multipliers from April 2026 https://www.swindon.gov.uk/info/20041/business_rates/1751/changes_to_business_rates_multipliers_from_april_2026
[27] Business rates: forward look https://www.gov.uk/government/publications/business-rates-forward-look/business-rates-forward-look
[28] What’s Changing with Business Rates – and Why Retailers … https://brc.org.uk/news-and-events/news/corporate-affairs/2025/ungated/what-s-changing-with-business-rates-and-why-retailers-should-care/
[29] Kickstart economic growth https://labour.org.uk/change/kickstart-economic-growth/
[30] Rachel Reeves’s budget 2025: The IfG’s six things to look … https://www.instituteforgovernment.org.uk/comment/rachel-reeves-budget-2025-ifgs-six-things
[31] Autumn Budget 2025: tax rises for business owners? https://www.simplybusiness.co.uk/knowledge/business-news/autumn-budget-2025-for-small-business/
[32] Small businesses account for 60% of missing taxes https://www.rossmartin.co.uk/sme-tax-news/8497-small-businesses-account-for-60-of-missing-taxes
[33] Navigating the Tides of Change https://www.gmgoodemploymentcharter.co.uk/blogs/posts/2025/november/navigating-the-tides-of-change-what-the-employment-rights-bill-means-for-small-businesses/
[34] Our Plan for Small and Medium Sized Businesses https://assets.publishing.service.gov.uk/media/688b1f6f1affbf4bedb7b11d/our-plan-for-small-and-medium-sized-businesses.pdf
[35] The Autumn Budget 2025 : Predictions and possibilities – Saltus https://www.saltus.co.uk/the-financial-planning-blog/saltus-news-desk/the-autumn-budget-2025
[36] UK growth forecast upgraded to 1.5% for 2025 https://www.ey.com/en_uk/newsroom/2025/11/uk-economic-growth-forecast-upgraded-for-2025
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