Britain's high streets are experiencing a significant increase in vacant shopfronts, with small business owners reporting that operating in the UK has become more challenging than in mainland Europe. A study by the start-up and small businesses network Enterprise Nation found that 22% of UK-based store owners observed more than a quarter of nearby shops were empty. Furthermore, 64% of respondents believe the UK is a more difficult environment for businesses than its European counterparts.
The report, titled "Growth on Hold," identifies rising wages, business rates, energy bills, and mounting VAT and National Insurance contributions as key factors stifling growth in town and city centers across the country. Consequently, 77% of high street businesses have postponed growth plans, and 42% have been compelled to reduce customer-facing staff.
High street firms are particularly affected by business rates, with 67% of shops paying them compared to only 21% of businesses elsewhere. Across all surveyed small businesses, 69% have delayed or canceled growth plans in the past year, and half have cut investment opportunities.
Specific cost pressures mentioned include employer National Insurance, business rates, supply costs, and energy bills. VAT was cited as a top three pressure by six in ten businesses. For example, Victoria Cozens, owner of the six-shop coffee chain Perky Blenders, stated that her company's annual employer National Insurance bill has increased by over £20,000 since 2024. This rise, coupled with wage increases and business rate hikes, has made it difficult to support employees and has curtailed plans for expansion and franchising.
Gabriel Larraz, founder of the Spanish restaurant Broken Eggs in Fitzrovia, noted that increased operational costs have consumed all the volume growth the restaurant has achieved. He highlighted that the cumulative effect of rising national minimum wage, employer contributions, business rates, and energy costs, along with increased input prices from suppliers facing similar pressures, is significant. Larraz expressed frustration with the constant changes in regulations, stating that predictable, long-term rules would aid business planning.
VAT emerged as the primary policy concern for small businesses, with 29% ranking it as their top pressure, ahead of wages at 24%. A reduction in the standard VAT rate is the number one policy demand for the upcoming Autumn Budget, with 37% of businesses calling for it, far exceeding demands for lower business rates or reduced employer National Insurance. For high street businesses specifically, 54% identified a VAT cut as their top request.
However, most businesses indicated they would use any savings from a VAT cut to absorb other rising costs (46%) or reinvest in their business (44%), rather than immediately cutting prices (23%).
Aaron Asadi, CEO of Enterprise Nation, stated that businesses are seeking opportunities to grow rather than bailouts. He observed that the current situation on the high street, with empty shops and fewer staff, indicates a shrinking rather than growing sector. Asadi emphasized that small businesses, despite meeting expectations, are being overwhelmed by mounting costs. He urged the government to make decisive policy choices, such as a VAT cut for hospitality, targeted rates relief for small premises, and ensuring existing support reaches businesses effectively.
Energy costs are also a significant burden, with businesses estimating an average 18% margin reduction due to rising bills. However, many are unaware of available efficiency grants and reliefs. Three-quarters (75%) are not aware of efficiency grants, and two-thirds (69%) do not know that a 20% reduction in energy costs can boost their bottom line by up to 5% in sales.
Cash flow issues are a major differentiator. Businesses not confident about their cash flow are more likely to have delayed growth (86%) and cut investment (62%), with almost half (48%) considering closure. In contrast, only 50% of businesses confident about cash flow have delayed growth, and 12% have considered closing.
The "Growth on Hold" report recommends several government actions, including deciding on hospitality VAT at the October Budget, raising Small Business Rate Relief thresholds, incentivizing landlords to re-let empty shops, providing cost support as grants, enforcing late payment laws, increasing backing for small business lending, and rolling out business energy advice services nationwide.
Robert White, Executive Director at Square UK, noted that rising costs are preventing many small businesses from growing. He stated that the heaviest pressures—VAT, National Insurance, and business rates—require government intervention. White added that businesses with clear financial visibility and quick access to capital are better positioned, suggesting that policy changes combined with improved financial management are crucial for recovery.