Employment costs emerge as biggest barrier to SME growth, new Capify research reveals
The UK’s small business community is beginning to show renewed confidence, but rising employment costs, economic uncertainty and cash flow pressures continue to hold back growth for the business and professional services sector, according to new research from alternative finance provider Capify.
Published as Andy Burnham becomes PM, the latest Capify Business Confidence Report provides a snapshot of the opportunities and challenges facing business and professional services SMEs.
Based on a survey of hundreds of business owners from the sector and beyond, the report highlights growing financial concerns for many.
Almost seven in ten businesses experienced higher operating costs during the last quarter, while more than a third now find it difficult to access finance – up significantly on the previous survey.
The report concludes with five ways that a new PM could support smaller businesses. Each one is based on a key finding:
Employment taxes are stifling growth
Employment-related taxes have the biggest impact on hiring decisions, affecting 85% of SMEs, with wage inflation and employer legislation also affecting recruitment. The data suggests that cost and complexity of employing people are reducing hiring, with impacts on the wider economy.
AI adoption has stalled
Sixty percent of SMEs say AI has had little or no positive impact on their business so far. The findings suggest many businesses need practical support and clearer evidence of where AI can deliver measurable value.
Late payments continue to hold back SMEs
More than 70% of SMEs say delayed payments affect their business, restricting cashflow and delaying investment. The findings reinforce the importance of improving payment practices across the UK economy.
Small businesses struggle to find skilled staff
A quarter of businesses say recruiting skilled employees is their biggest staffing challenge, underlining the continued importance of strengthening the UK’s skills pipeline.
Confidence remains low – though there are signs of optimism
While confidence in the UK economic outlook remains low at 22%, a ten-percentage point rise since Q1 2026 suggests tentative signs of recovery. However, more than four in ten SMEs are less confident about their businesses than they were a year ago. The mixed picture continues, with SME owners who describe themselves as extremely confident in their own business doubling from 7% to 14%.
John Rozenbroek, COO/CFO at Capify, said: “The timing of this report provides an interesting snapshot of sentiment among smaller business and professional firms and the wider SME community. While confidence is beginning to recover for some, many more struggle to protect margins, manage cash flow and secure finance.
The report identifies five ways the incoming Prime Minister can help smaller businesses, including reducing employment costs, improving workforce skills, and supporting AI adoption.”