Small business confidence risks further falls without government intervention, a new industry survey suggests.
The Federation of Small Businesses (FSB) Small Business Index (SBI), which tracks how optimistic small firms are feeling, registered at -53 in Q1 2026, 18 points up from Q4 2025’s historic low of -71, the lowest level of small business confidence outside the pandemic.
That means confidence has remained negative for eight consecutive quarters.
This month, the ‘April costs crunch’ is hitting, which will push up business rates and standing charges on business energy bills, as well as increasing the National Living Wage and expanding Statutory Sick Pay (SSP) rules.
On top of this, business owners will face compulsory Making Tax Digital compliance. An increase in dividend tax means company directors will also see a drop in their take-home pay.
A total of 87% of firms are seeing their costs rise compared to the same period last year – and over a quarter (26%) are reporting double digit rises.
The data collected will not fully reflect the steep sustained cost impacts of the Middle East crisis, which will now aggravate an already very difficult situation.
Taxation remains the top driver of cost increases for the fourth quarter running (58%), while labour (56%) and utilities (53%) are a close second and third.
At the same time, more small firms are seeing their incomes fall than rise, with over half (54%) reporting a drop in revenues over the last three months, compared to a quarter (24%) seeing an increase. Meanwhile, 45% expect a fall in the months ahead.
This is feeding through into hiring, with more small firms planning to cut staff (21%) than hire (8%). Over the past three months, 23 per cent of firms reduced staff, with 8 per cent increasing headcount.
Growth expectations for the next year are also low, with more small firms expecting to contract, close or sell than to expand (30% vs 22%). However, this varies by size, with firms employing 10 to 49 people slightly more likely to expect growth than contraction compared to the smallest firms (1 to 9 employees), where more expect to contract than grow.
Late payments remain widespread, with 69% affected – but new legislation announced last week means the Government will act following FSB’s campaigning and reform proposals.
FSB is calling on the government to:
- Reduce business rates by using in full the powers it has taken to lower costs within the retail, hospitality and leisure sectors
- Mirror for small businesses the help that consumers have already received, by removing Renewable Obligation costs from bills, therefore offsetting energy standing charge hikes
- Introduce a Statutory Sick Pay (SSP) small employer rebate
• • Pledge to hold dividend taxes from further rises for the rest of this Parliament.
