The Decade Long Anti-Small Business Agenda in UK Politics

Policy changes have a theme ....

For small businesses, its been a turbulent last 10 years.  As well as having to compete day to day, they have had to deal with a raft of policy changes and red tape introduced by various governments.  Some of these changes include:

Policy Date Reason
Dividend Tax Reform 2016 Abolished dividend tax credit; introduced dividend allowance and higher tax rates, reducing net income for small‑company directors.
IR35 Reform (Public Sector) 2017 Clients became responsible for employment status decisions with financial risks falling to them.
Section 24: Mortgage Interest Relief Removal (Buy‑to‑Let) 2017-2020 Removed ability to offset mortgage interest fully; replaced with a 20% tax credit, increasing tax for landlords.
Business Rates Revaluation 2017 Updated rateable values; many high‑street SMEs saw increases.
Making Tax Digital for VAT 2019 Required digital record‑keeping and software‑based VAT submissions for VAT‑registered businesses.  Led to significant increases in software costs.
Low‑Value Consignment Relief Abolished (Small Parcel Imports) 2020 LVCR abolished; VAT required at point of sale for goods under £135. Enforcement gaps allow overseas sellers to underpay VAT, disadvantaging UK SMEs.
IR35 Reform (Private Sector) 2021 Extended public‑sector IR35 rules to medium and large private‑sector organisations.
Brexit Trade Restrictions 2021 Introduced customs checks, VAT changes, certification requirements, and supply‑chain friction for UK‑EU trade.
Business Rates Revaluation (Latest) 2023 New rateable values based on 2021 market; many SMEs saw increases due to valuation shifts and multiplier rules.
Corporation Tax Increase 2023 Main rate increased from 19% → 25% for profits over £250k; tapered rate (19–25%) for £50k–£250k affects many SMEs and leads to a marginal rate of 26.5%.
Renters Reform Bill / Renters Rights Act 2023 - 2025 Abolishes Section 21 evictions; increases compliance obligations for small landlords.
Employer NIC Threshold Freeze 2024 Secondary Threshold frozen at £9,100, creating a real‑terms NIC increase for employers as wages rise.
Making Tax Digital for Income Tax (including Buy‑to‑Let) 2026 - 2027 Quarterly digital reporting for landlords and self‑employed individuals earning £30k–£50k+.  Catches them in the same software trap as SME's reporting VAT.

The changes above clearly have a bigger impact on small business and has certainly made life harder for them.  

The importance of SME's

There is wide recognition that economies need a thriving SME sector to succeed - in fact research shows that they are structurally essential.  In the UK, they provide over 60% of jobs, drive innovation adopting technology much faster than larger companies, support regional resilience and act as a key market force preventing market concentration.  They are the foundation of the UK economy.  

Their health, therefore, is a concern for everyone and we need our politicians to support them with good policy.  It is from today's small companies that tomorrow's large companies will grow from and that cycle of evolution is vital too.

Rhetoric doesn't match actions

Our main political parties always like to make the claim that they are business friendly.  The previous Chancellor, Rachel Reeves used to roll out the phrase:

"Labour is the party of business"

Between 2015 and 2024, the Conservatives have stated that:

"The Conservatives are the party of business.."

The Conservative Party have tweaked the claim for each election cycle but the core of their argument remains the same.  They have made various claims about supporting entrepreneurs and innovators over that time.  Both parties have argued that they will support SMEs.

However, both parties are responsible for the list of policies above and that, by no means, is an exhaustive list (for example changes to Research and Development are not included).  There is an argument that these policies are openly hostile against small business.  In fact, if I were representing either party and was asked about my small business credentials, I think I'd be embarrassed to reply.

Understanding why

There are potentially many reasons for such an unfriendly stance but in my view, here are some of the key ones:

Poor quality of advice

During the decade of changes above we have had 2 different parties in power.  So the changes are not being driven by the ideologies of those parties.  The one constant in all of this are the two government departments - HMRC and the Treasury that provide advice to ministers.  Given the changes made, it would imply that these departments do not understand small business or the needs of those businesses.​  Certain potential measures are reported by the press year after year  as being considered, regardless of change of political party, implying that the same advice is continually given until it is adopted as policy.

Easy pickings

It is well know that large businesses can employ people to lobby full time and are often able to influence ministers and parties through personal connections.  In general, small business simply does not have this lobbying power, so they are easy targets for policy makers.  In addition, their finances and structures are relatively simple, meaning that if policy holders target smaller business, they can be more certain of meeting their policy aims, knowing that small businesses do not have ability to avoid or side-step in the same way a more well resourced and geographically spread business does.  This means that there is an active incentive in government to target small business.

Avoids international tension

Targeting mostly domestic businesses with change is an easy way forward.  As the UK government have found with things like the digital sales tax, multi-nationals are good at complaining to their home politicians.  We have seen rhetoric and retaliation from the US in the form of tariffs as a result.  Politicians will seek to avoid causing international tension where they can which again makes small business the easy target.

Lack of knowledge

With so many policies either targeting or having a disproportionate impact on small business, it is difficult to conclude anything other than there is insufficient knowledge and understanding of SMEs within key government departments.  Career politicians and civil servants have little understanding of the risks and struggles of small companies.  Their predictive models of the impact of changes do not always accurately reflect the impact on SMEs​, particularly micro SMEs and do not fully take into account all factors.

Failure to cut red tape

A number of governments over recent years have made promises over red tape.  For example, at one point, the Conservatives promised to not introduce a greater burden on business by ensuring that every new burden would be offset by the removal of something else.  However, in reality, burdens have significantly increased, in particular with events such as Brexit.  This hampers small business and diverts resources that could be productively used elsewhere.

Perception bigger is better

Government is creating an impression that bigger is better with some of their narrative.  For example Buy To Let changes were partially designed to bring in larger landlords , with the Conservative government talking about encouraging institutional landlords.  White papers have suggested that Government should "support the professionalisation of the sector through large-scale providers".  Other changes also favour bigger companies.  There is a view that bigger is seen as better, with policy therefore designed to make life harder for small companies.

What now?

The government really needs to have a reset in their treatment of SMEs.  The introduction of a Small Business Commissioner is encouraging but they now need to go much further.  

In my view, leadership within HMRC and the Treasury should be replaced or  augmented with people that have a much better understanding of small business.  Policies and taxation strategy needs to be much more friendly to small business, treating them with much more care than their larger counter-parts.  There needs to be an urgent look at red tape, ensuring that what is asked for takes into account the size of a business.  Where promises are made to cut red tape, these must be upheld.  Government needs to look to ensure that the system encourages small business to grow and that there is genuine reward for doing this rather than the punishment that many businesses see now.  Relevant government ministers and departments need to look at how they employ people with the right skills and knowledge to help small business thrive.  Policy reversal rarely happens, but perhaps, with the right people in place, we may get policy evolution to provide the right incentives and support for the next generation of entrepreneurial risk takers.

Unfortunately, unless the Small Business Commissioner gets to work quickly, it looks like further damaging change is on the way.  Looming on the horizon we have initiatives such as electronic invoicing and the government trusted trader payment system, which although well meaning, is likely to cause cashflow issues for some legitimate Traders.  Hopefully with a changing of the guard this summer, we will see a new attitude towards SME's, allowing them to power ahead and drive UK growth.