Small businesses are urging Burnham and the new Labour Government to cut costs and make it easier to hire and grow after sales growth slowed for a third consecutive quarter. Higher energy prices and continued economic uncertainty stemming from the Middle East conflict are adding pressure on small firms.
Sales across small businesses rose by 3.6 per cent year-on-year in the three months to June, according to aggregated data from 440,000 customers of business software firm Xero. That growth slowed from 4.2 per cent in the previous quarter and 5.5 per cent in the final three months of 2025, marking a sharp drop from the historic average of 8.5 per cent.
The ongoing pressure is having a direct knock-on effect on hiring and investment. Jobs growth among small firms slowed to 1.7 per cent over the period, marking the slowest hiring pace since the end of 2025.
Sector breakdown of employment and sales
Employment trends varied across different industries during the quarter. The healthcare sector recorded the strongest employment growth, rising 3.8 per cent year-on-year, followed by real estate services and retail, which both grew by 3.5 per cent.
In contrast, hospitality saw hiring fall by 0.7 per cent over the quarter as businesses grappled with higher taxes and labour costs. Hospitality sales also dropped by 0.5 per cent year-on-year, while retail sales increased by 2 per cent.
"Things aren't improving for our small business economy, which should be a real wake-up call for the new Labour government," said Kate Hayward, UK managing director of Xero. She added: "Even the warmer weather in June hasn't given our retail and hospitality sectors the boost they so desperately needed. We're seeing businesses holding back on hiring and growth, and all of this pressure is being compounded by payment times creeping up and rising fuel costs. It's not sustainable."
Demands for cost relief and rate cuts
Pubs and restaurants have called on Burnham to ditch policies imposed by the previous government, including increased employer National Insurance contributions and a higher minimum wage. Last week, Burnham announced he would cut business rates by 20 per cent for pubs, clubs and live music venues, but excluded hotels, restaurants and cafes.
Kyle Hyams, owner of Orla's Coffee & Gelato and Aoife's Gelato, said staff and produce costs have "never been higher, so we're constantly weighing up whether to reduce our team." He added: "We provide income to 50 people employed across our businesses, but the support for businesses that are improving their communities isn't there. We'd love to see some control on food prices, a cut in VAT for hospitality, and grants or government-backed loans would make a real difference right now."
Hayward noted that upcoming policy decisions will be critical for small firms. "The Autumn Budget is shaping up to be a real test for the new government to show they are listening and backing their pro-small business rhetoric," Hayward said. "We need policies that restore small business confidence, improve cash flow and create the conditions to invest, hire and grow."
