The latest survey from the Federation of Small Businesses (FSB) shows more than half of UK small companies experienced lower takings in the third quarter of 2026, heightening pressure on hiring and investment as Chancellor Jeremy Hunt prepares to deliver the Budget on 28 October.
Falling revenues and mounting costs
FSB figures reveal that 53% of small firms reported a decline in revenues over the three months to the end of September, compared with just 23% that recorded increases. Looking ahead, nearly half — 47% — expect revenues to fall again in the final quarter of the year, while only 22% anticipate growth.
The financial squeeze is driven primarily by rising operating costs: almost nine in ten small businesses said their costs were higher than a year earlier, and around a third reported increases of more than 10%. When asked which pressures were most significant, firms pointed to:
- Taxation: cited by 55% of those affected
- Fuel prices: 53%
- Utility bills: 52%
- Labour costs: 50%
Impact on jobs and recruitment
Costs and weaker trading are translating into a softer jobs market among smaller employers. In the third quarter just 7% of small businesses increased headcount while 20% reduced staff. Recruitment expectations remain subdued: only 6% plan to hire in the fourth quarter and 18% expect further job cuts.
Despite these constraints, there is latent appetite to expand. The FSB’s research indicates that 28% of small employers would recruit if reliefs on business rates were broadened — an argument the organisation hopes will influence Budget decisions.
What the FSB wants from the Budget
With the Budget days away, the FSB is pressing the Treasury to target measures that would directly reduce overheads for small businesses. Its primary asks include:
- Raising the threshold for Small Business Rate Relief
- Increasing the Employment Allowance
- Measures to reduce energy costs for smaller firms
Those requests reflect a pragmatic effort to blunt immediate cost pressures and support demand for labour among micro and small enterprises. The FSB argues that targeted reliefs would unlock recruitment and investment that current conditions are suppressing.
| Metric | Value |
|---|---|
| Firms reporting revenue fall (Q3 2026) | 53% |
| Firms reporting revenue rise (Q3 2026) | 23% |
| Expect revenues to fall (Q4 2026) | 47% |
| Operating costs higher than a year earlier | ~90% |
| Grew workforce (Q3 2026) | 7% |
| Cut staff (Q3 2026) | 20% |
Consequences and context
The FSB’s snapshot underscores a persistent dilemma for policymakers: inflationary and energy-related costs continue to erode margins at smaller firms even as monetary policy and demand conditions cool. Small businesses account for a significant share of employment and local economic activity, meaning continued weakness risks wider labour market and growth effects.
For the Treasury, the case for temporary or targeted relief is politically and economically potent but fiscally challenging. Raising the Small Business Rate Relief threshold would lower bills for many micro firms but reduce receipts unless offset by other measures. Increasing the Employment Allowance would directly lower wage-related costs for employers, potentially supporting hiring, but also has a material cost to Exchequer revenues.
For business owners, the FSB survey suggests immediate tactical responses: trimming staff, curtailing investment and delaying hires. The organisation’s calls to change reliefs aim to shift firms from damage limitation back towards growth — a transition that will depend on the Budget choices set out on 28 October and on broader trajectories for energy and input costs.
As the Chancellor finalises fiscal plans, the FSB’s data will be one of the clearest indicators of pandemic-era fragility that persists across the UK’s smallest enterprises.
