Economy and tax worries holding back small business spending, Barclays warns

Small British businesses are reluctant to invest due to a lack of confidence in the economy and fears of further tax hikes, leaving billions of pounds of untapped spending potential, Barclays has said.

If small and medium-sized enterprises (SMEs) invested at the same rates as larger firms, around £60 billion of new investment could be unlocked per year in the UK economy, according to estimates by the bank.

Business investment refers to spending on assets like buildings, machinery and intellectual property.

The banking giant used its own customer data, spanning around a million SMEs and a quarter of UK corporates, and official and government investment figures for the analysis.

Smaller firms have the appetite to invest in growth but are reluctant to do so because of low levels of confidence, the report found.

This stems from worries about the economic climate, their ability to repay debts from lenders, and the direction of government policy measures.

Barclays said increased business costs resulting from last year’s autumn budget had a significant effect on SME business confidence into 2025.

Between the third quarter of 2024 and the second quarter of 2025, the proportion of SMEs which felt positive about the current climate dropped from 48% to 36% while economic uncertainty rose sharply, the bank said.

It suggested firms need reassurance that “the Government does not intend to raise business taxes, national insurance contributions or business rates further”, emphasising the need for “consistent policy direction”.

The Government should make it a deliberate priority to boost business confidence, including by setting it as a specific policy goal and changing perceptions that borrowing to invest comes with excessive risk, Barclays said.

Matt Hammerstein, chief executive of Barclays’ corporate bank, said: “Short-term economic shocks like rising energy prices and broader inflationary pressure make it much more challenging for smaller businesses to plan for their future growth.”

He said SMEs across the UK have “huge potential to invest and grow” but need their confidence boosted to do so, which will come from “greater long-term policy certainty”.

“Even small improvements in SMEs’ appetite to invest could have transformational impacts for the UK economy,” he added.