The government’s new small business strategy could be a vital lifeline for hospitality businesses as sales slow.
Small business sales are slowing. Between April and June, sales growth was only 2.3% year-on-year, new data from Xero shows. That’s less than half the pace seen earlier in 2025.
Retail and hospitality are two of the hardest hit sectors. Hospitality has experienced particularly weak growth of just 1.5% year-on-year, as consumer spending shifts towards arts and recreational activities during the summer months.
The statistics have been released just as the government launched its new Small Business Plan, which could bring some relief to suffering pubs, bars, and restaurants. The package includes a £4 billion finance package and reforms to address the late payment crisis.
Sales are slowing — and hospitality is feeling it first
The study from accounting software Xero found that sales growth within the small business sector has seen a marked slow down in the last few months, as hiked inflation continues to limit consumer spending.
Hospitality has seen a particularly dramatic slowdown, with sales growing only 1.5% year-on-year, only slightly better than retail at -0.6%. In response, hospitality owners are having to raise prices and streamline workforces to keep their businesses afloat.
The past couple of years have seen the sector fight an uphill battle. From struggling to bounce back from the pandemic, to surviving staff shortages and surging costs, it’s clear that the sector is under immense strain.
And it’s not just the smaller organisations that are feeling the pinch. Major brewery chain BrewDog announced plans to close ten bars, while Greene King’s boss called for reform to business rates, illustrating that even big names are struggling in the current conditions.
Xero reports that the arts and recreation sectors have seen more growth, with a 3.4% increase year-on-year. This implies that consumers are prioritising spending on leisure activities over dining out, reflecting a broader shift towards the “experience economy”.
Government steps in with Small Business Plan
Last week, the UK government launched its bold Small Business Strategy to support struggling sectors like hospitality by tackling issues such as improving access to finance.
A headlining move of the strategy is a £4bn finance package, £3bn of which will be awarded to the ENABLE programme, a funding scheme delivered by the British Business Bank that provides guarantees to those lending to SMEs.
The government also plans to introduce the “toughest laws in the G7” when it comes to late payments. Delayed invoices from corporate clients and event organisers can create a domino effect leaving bars, restaurants, and other hospitality venues unable to pay staff, suppliers, and essential bills on time.
Without the financial reserves or leverage to absorb such delays, some are turning to short-term loans or overdrafts to cover the gaps, raising their costs at a time when margins are already under strain.
The reforms will be led by the new Small Business Commissioner (SBC), Emma Jones CBE. Jones will gain new powers to enforce 30-day invoice verification and carry out spot checks to ensure businesses are paid on time, helping firms to achieve healthier cash flow.
What can hospitality owners do next?
Kate Hayward, Xero UK’s Managing Director, commented on the data: “Small firms are definitely feeling the heat at the moment in more ways than one, and Q2 was no different.
“Consumers appeared even more cautious with their spending when interest rate cuts should be easing that pressure. We need to see that translate into stronger demand, as many businesses continue to face a tough operating environment.”
The Small Business Plan brings plenty of promise for bars, pubs, and restaurants with stricter rules on payment terms and new powers of enforcement.
However, for hospitality, one major cause for the significant financial strain still needs addressing. In April, employer National Insurance Contributions were raised to 15.0%.
One third of UK business owners are already planning to make job cuts due to the impact, while 24% agree the increase should be rolled back.
If you’re a hospitality business struggling with slowed down sales, you can explore other funding options available in our Small Business Grants guide.
