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The UK’s small businesses should be fuelling the country’s growth ambitions. Here’s why that’s not happening

The UK government’s spending review has set out its priorities for the next three years. But behind the rhetoric about boosting growth lies growing concern about small businesses being locked out of the wider UK economy. Government funding and regulation are increasingly out of step with the reality of micro-enterprises and sole traders, shutting off their potential to boost GDP growth.

These businesses already punch above their weight, accounting for 60% of private-sector employment and more than half of total business turnover. Yet while recent budgets have pushed up costs through higher employer national insurance (NI) contributions and minimum wage rises, little meaningful relief has been offered in return.

As a result, a recent British Chambers of Commerce survey found that 82% of businesses expect the NI hike to damage their business. More than half say it will affect recruitment plans, prices and day-to-day operations.

Working with small businesses, apprentices and local enterprise leaders, we have seen how government support schemes often fail to reach those who need them most. Our research into informal work and legitimacy shows that many micro-businesses (ten employees or fewer) and sole traders operate in a space where regulatory demands feel misaligned with their economic reality.

Across the UK, many micro-businesses already operate on a thin margin. For some, formal compliance with tax, labour and reporting obligations is simply out of reach. This is not due to unwillingness, but rather to a lack of manpower and time. In short, it is not about criminality, but survival.

And when formality becomes unviable, the government loses out too through reduced tax receipts, lower NI contributions and missed opportunities for growth.

In our research, we’ve found that formal and informal business owners don’t reject regulation outright. They reject complex systems that demand compliance without offering security. When the risks of being “seen” by the taxman outweigh the benefits, informality becomes a rational, even morally justifiable, choice.

Informality is a significant global issue. According to the 2025 report by the International Labour Organization, even in high-income countries like the UK around one in ten workers are informally employed. And more than 60% of these people are working within formal enterprises, typically as undeclared workers.

Informal work is most common in service and construction industries, and despite high education levels, nearly one in four informal workers lives below the poverty line. This compares to just 14% of formal workers.

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For the full article by Dr Danny Buckley visit the Conversation.

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Notes for editors

Press release reference number: 25/98

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It has been awarded five stars in the independent QS Stars university rating scheme and named the best university in the world for sports-related subjects in the 2025 QS World University Rankings – the ninth year running.

Loughborough is ranked 7th in The UK Complete University Guide 2026, 10th in the Guardian University League Table 2025 and 10th in the Times and Sunday Times Good University Guide 2025.

Loughborough was also named University of the Year for Sport in the Times and Sunday Times Good University Guide 2025 - the fourth time it has been awarded the prestigious title.

Loughborough is consistently ranked in the top twenty of UK universities in the Times Higher Education’s ‘table of tables’, and in the Research Excellence Framework (REF) 2021 over 90% of its research was rated as ‘world-leading’ or ‘internationally-excellent’. In recognition of its contribution to the sector, Loughborough has been awarded seven Queen's Anniversary Prizes.

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