Small businesses are calling on the new Labour government to ease regulatory burdens and cut costs to support growth, as they experience a third consecutive quarter of decelerating sales. Higher energy prices and ongoing economic uncertainty, exacerbated by the Middle East conflict, are placing significant pressure on these enterprises.
Data from business software firm Xero, which aggregates information from 440,000 customers, indicates that sales growth for small businesses slowed to 3.6 percent year-on-year in the three months ending June. This is a decrease from 4.2 percent in the previous quarter and 5.5 percent in the final quarter of 2025, marking a substantial drop from the historical average of 8.5 percent.
The slowdown in sales is directly impacting hiring and investment. Job growth among small businesses fell to 1.7 percent over the period, the slowest pace recorded since the end of 2025. The healthcare sector showed the strongest employment growth at 3.8 percent year-on-year, followed by real estate services and retail, both at 3.5 percent. In contrast, the hospitality sector experienced a 0.7 percent decline in hiring, with businesses struggling with increased taxes and labor expenses.
Kate Hayward, UK managing director of Xero, stated that the current economic conditions should serve as a "real wake-up call" for the government. She noted that even warmer June weather failed to provide a needed boost to the retail and hospitality sectors, with businesses hesitant to hire or expand. Rising fuel costs and extended payment times further compound these issues, creating an unsustainable environment.
Within specific sectors, hospitality saw a year-on-year sales decrease of 0.5 percent, while retail experienced a modest 2 percent increase. Pubs and restaurants are particularly urging the government to reconsider policies enacted by the previous administration, such as increased employer National Insurance contributions and a higher minimum wage.
Kyle Hyams, owner of Orla's Coffee & Gelato and Aoife's Gelato, highlighted that escalating staff and produce costs are forcing businesses to consider reducing their workforce. He expressed a desire for government intervention in controlling food prices, reducing VAT for the hospitality sector, and providing grants or government-backed loans.
Last week, the government announced a 20 percent business rates cut for pubs, clubs, and live music venues, but this measure excluded hotels, restaurants, and cafes. Hayward emphasized that the upcoming Autumn Budget will be a critical test for the new government to demonstrate its support for small businesses by implementing policies that restore confidence, improve cash flow, and foster an environment conducive to investment, hiring, and growth.