Kick starting UK SME growth

UK SMEs are essential to getting Britain growing again

Unlocking the potential of small and medium enterprises (SMEs) is essential to getting Britain growing again after years of sluggish performance. SMEs generate roughly half of all business turnover - a strong proxy for their contribution to GDP.

UK SMEs have fallen behind

Instead of being an engine of growth, the sector has started to fall behind corporates with SME turnover as a percentage of total business turnover falling from 52.2% (2020) to 51.2% (2025) (1):

• SME creation has stalled. Having shown 100-200,000 net growth a year previously, SME numbers peaked during the pandemic at 6m (2), but have since dropped to 5.7m (3) and have roughly stagnated at this level in recent years.

• SME productivity is not increasing in real terms. In 2020, 6m SMEs generated £2,27b turnover; an average of £380,000 per SME. In 2025, 5.7m SMEs turned over £2,821b; an average of £497,000. This roughly 30% turnover growth is matched by inflation over this period. In other words, SMEs have managed to pass on price increases but have failed to improve their own productivity since 2020.

In sum, SMEs are not growing due to a combination of external economic pressures and internal challenges, including high energy and operational costs (such as the National Insurance rises earlier in 2025), low levels of digitisation, difficulty accessing finance, regulatory complexity and the impact of Brexit. 

Six policy asks to kick start UK SME growth

Tide exists to help people start and grow their businesses with less friction and more confidence. With 14% market share and nearly 800,000 members in the UK alone, we see first-hand where entrepreneurs get held back – whether they’re registering a company for the first time, hiring their first employee, or opening additional premises.

This gives us unique insights into the practical measures the Government can take to catalyse SME growth.

Here are six quick wins that could be implemented as part of the Budget:

A. Restarting business births

(i) Policy ask: Allowing benefit recipients to keep their current benefits for two years, giving them a safety net while they get their business off the ground.

• Problem: When an adult in the UK on benefits decides to start a business, they risk losing their benefits which creates a) financial risk and b) disincentive to try entrepreneurship. Universal Credit payments are based on monthly earnings. New business owners who have been on Universal Credit might be able to get a 12 month ‘start-up period’ (4) reprieve if they are self-employed. This, designed to be a support measure for earlier stage SMEs, is not guaranteed, and the self-employed and company directors still need to report their earnings. Even if the 12 month period is granted, we at Tide feel this should be systematic and applied to all those starting out: this should be mandated, and with this clarity provided. 

• Outcomes: Encourages people on benefits to start businesses. This does not cost any more as it’s likely the benefits would be paid otherwise anyway.

(ii) Policy ask: Exempting new businesses for 24 months (from their start period) from employee rights legislation, as built into the Employment Rights Bill (ERB).

• Problem: The main problem the Employment Rights Bill poses for new businesses is the risk of employing staff. For new businesses that require staff from day 1, it will prevent business creation.

• Outcomes: Staff-intensive business creation will not be blocked.  Given the high survival risk of new businesses, it is questionable whether the ERB will provide additional job security in businesses just starting out.

B. Making businesses more productive

(i) Policy ask: Modernise PAYE registration – deliver an integrated service so new businesses can hire staff quickly.

• Problem: PAYE registration with HMRC currently takes four to six weeks, preventing nearly 300,000 firms each year from hiring during their crucial formation period. The process remains largely paper-based, relying on postal correspondence and manual activation.

• Outcomes: For Businesses: Seamless PAYE registration in minutes, not weeks, enabling immediate hiring and growth.

• For HMRC: Reduced operational burden through automation and industry partnerships, while maintaining full compliance oversight.

• For the UK Economy: A more attractive environment for new businesses, encouraging PAYE adoption and setting a global standard for frictionless business formation.

(ii) Policy ask: Raise and smooth the VAT threshold to prevent small firms from being penalised for growth.

• Problem: The VAT registration threshold has barely moved in eight years, leading many small firms to limit turnover to avoid crossing it.

• Outcome: A tapered or gradual mechanism would reduce this fiscal drag, encourage growth, and allow more firms to scale sustainably.

(iii) Policy ask: Taper Small Business Rate Relief to remove the cliff-edge that penalises expansion.

• Problem: Under the current business rates regime, firms lose relief or face significantly higher bills when they expand or add a second site.

• Outcome: A tapered system would encourage growth and job creation while maintaining steady local authority revenues.

(iv) Policy ask: Strengthen UK Fintech to support UK SMEs digitisation by avoiding tax measures to discourage investment and unlock pension funds.

• Problem: Low level of digitisation is a key productivity impediment for SMEs. FinTechs are critical to unlocking this productivity driver.

• Outcome: Entrepreneurs are highly motivated to build out their businesses. Any time saved on admin is likely to translate directly into activities to grow their businesses.

We look forward to further engaging with No. 10, HM Treasury and the Department of Business and Trade to support a more concerted effort to drive growth in the UK. 

Oliver Prill Tide CEO

1. UK Government: Business population estimates for the UK and regions 2020: statistical release and Business population estimates for the UK and regions 2025: statistical release

2. UK Government: Business population estimates for the UK and regions 2020: statistical release

3. UK Government: Business population estimates for the UK and regions 2025: statistical release

4. UK Government: Help with moving from benefits to work. From this page, and on claiming Universal Credit, the self-employed would need to report:

• how much they earned from self-employment, even if it’s nothing

• any money they paid into a pension

• payments into and out of their business

This also applies to company directors, even those paying themselves by PAYE.