A major survey of Barclays Bank business customers has reinforced the widespread concern about new tax rises with a reluctance to borrow and invest across SMEs
The bank said that SMEs were not investing due to tax concerns, with 51% of businesses surveyed planning to delay investment until after the Budget. They want reassurance that the government does not plan to raise business taxes any further, especially national insurance and business rates.
Barclays analysis showed that in the year up to August 2025, 80% of SMEs did not borrow to invest while 40% considered borrowing to invest but did not go ahead. The report also found there was still a hangover from the pandemic loans which had created large amounts of debt, and suppressed borrowing and investment.
Immediate cost concerns were preventing SMEs from investing as short-term needs are being prioritised over future investments, the survey found.
Just over half (53%) of SMEs intend to increase investment in the next 12 months, compared to 67% of large companies over the same period. But UK SMEs have the lowest loan application rates among OECD peers and their fear of failure rate is at a record high.
Top issues facing SMEs in Q2 2025 were more immediate and operational in nature, with four of their top five barriers to growth focusing on tangible cost pressures, including on materials, utilities, and wages. As a result, SMEs are less focused on issues which tend to be longer term in nature, Barclays warns.
Abdul Qureshi, managing director of Barclays Business Banking said: ‘While SMEs often face higher perceived risks due to their size and resource constraints, they also offer outsized rewards in terms of innovation, agility, and regional economic impact. Striking the right balance on risk-reward is key to driving sustainable growth across the UK.’
Training and development of existing staff is the number one priority for SMEs in terms of immediate spending, followed by more marketing activity and new and existing product development.
However, the focus on near-term cost issues was reflected in weaker investment intentions on the part of SMEs. On skills shortages and rising wage costs, only 34% of SMEs were increasing investment in training and development of existing staff, compared with 55% of large companies.
The lack of investment is affecting adoption of new technology, with less than a third (30%) of SMEs investing in new or improved digital products or IT, including in artificial intelligence (AI) and emerging technologies over the last year. Barclays warned: ‘There is a risk that smaller businesses are being left behind.’
The loss of confidence in the last quarter was marked, with 22% of SMEs were not ‘confident about their future prosperity’, compared to only 6% of larger companies.
Calling for a shift on the narrative on investment, the report flagged the low confidence from SMEs, pointing to uncertainty surrounding the upcoming Budget.
Barclays urged the government to ‘set business confidence as a policy goal as a policy goal and create a stable, ambitious narrative that counters hesitation to invest and the perception that borrowing to invest comes with excessive risk’.
The focus needs to be on ‘making investment a whole economy effort’, Barclays said, and recommended the government set a target to increase the national investment rate from 17% to 22% by the end of this parliament.
If SMEs were to invest at rates in line with larger companies, £60bn worth of new investment could contribute to the economy, Barclays stressed.
Matthew Hammerstein, CEO of Barclays said: ‘Boosting investment is core to driving growth in the UK. Barclays analysis indicates there is a substantial opportunity to boost SME investment further. SMEs are the backbone of the UK economy, representing 60% of employment and over half of private sector turnover.
‘Even small improvements in SMEs’ appetite to invest could have transformational impacts for the UK economy.’
The survey gathered data from over 2,000 SME customers.