Falling revenues and rising costs are forcing small firms to cut staffing levels. Here’s what the FSB is asking the Chancellor to change.
- New FSB research found 53% of small firms reported falling revenues in the third quarter of 2026, compared with 23% that saw an increase, and 47% expect revenues to fall again in the final quarter.
- Almost nine in ten small firms say costs are higher than a year ago, and only 7% grew their workforce in the third quarter while 20% cut staff.
- The FSB wants the Chancellor to use the Budget to raise the Small Business Rate Relief threshold, increase the Employment Allowance and cut energy costs.
More than half of UK small businesses saw their revenues fall in the third quarter of 2026, as rising costs and weaker trading conditions weigh on hiring and investment.
That’s according to the Federation of Small Businesses’ (FSB) latest Small Business Index, which found that 53% of small firms reported a decline in revenues over the previous three months, while just 23% saw an increase. With the Budget on the 28th of October, the FSB is urging the Chancellor to act.
So what do the figures show, what does the FSB want, and what can founders do in the meantime?
Small firms don’t expect a quick rebound
The outlook for the final quarter isn’t any brighter. The FSB’s latest index shows that 47% of small businesses expect revenues to fall, compared with just 22% anticipating growth.
A big part of the story is rising costs. The FSB found that almost nine in ten small firms reported higher operating costs than a year earlier, and a third said they had risen by more than 10%. Of the firms affected, 55% blamed taxation, 53% fuel prices, 52% utility bills and 50% labour costs.
These pressures are also having a direct impact on jobs. Only 7% of small businesses grew their workforce in the third quarter, while 20% reduced staffing levels. Hiring expectations remain weak, too: just 6% plan to recruit in the fourth quarter, while 18% expect further job cuts.
Despite these financial roadblocks, the appetite to grow is there. New FSB research found that 28% of small employers said they would hire if business rates relief were expanded, suggesting that cost, not ambition, is the sticking point.
What does the FSB want from the Budget?
The FSB is calling on John Healey MP, the Chancellor of the Exchequer, to use the Budget to ease cost pressures and encourage growth, and its asks span business rates, employment costs, tax and energy.
Business rates come first. It wants the Small Business Rate Relief threshold raised after a decade without change, estimating that the freeze has pulled more than 100,000 additional small firms into the scope of business rates. It has also called for the threshold to rise to £25,000, which it says would take at least 250,000 firms out of rates altogether.
On employment costs, the FSB wants the Employment Allowance increased and linked to the National Living Wage, to help with employer National Insurance contributions, plus a rebate for Statutory Sick Pay.
On tax, it is calling for Business Asset Disposal Relief to be cut from 18% to 14%, reversing the April 2026 increase, and for the VAT registration threshold to rise to £100,000.
Finally, the FSB wants most Renewables Obligation charges to be removed from small business energy bills. It says fixed business energy costs rose by an average of 44% in March, with the Middle East conflict pushing prices higher.
Whether the Chancellor listens will become clear on 28 October, but for many small firms, the answer can’t come soon enough.
Whatever is announced at this week’s Budget, help is unlikely to arrive overnight. Here’s what you can do now to protect your business:
- Audit your highest costs – Start with tax, fuel, utilities and labour, the pressures firms cite most, and look for where you can cut back or renegotiate.
- Check what you can already claim – Make sure you’re using every relief you’re eligible for, such as Small Business Rate Relief or the Employment Allowance, rather than waiting on new support.
- Claim hiring help – Employers of any size can get up to £3,000 through the Youth Jobs Grant for hiring an 18-to-24-year-old who has been on Universal Credit for at least six months, and SMEs get £2,000 for each new apprentice aged 16 to 24, as we outlined in our hospitality hiring guide
