Since 2020, the small business world of the UK has undergone huge changes, with 48% of the sector wiped out. What used to be a lively, small business, entrepreneurial spine of the economy has been decimated by a combination of the economic upheaval caused by the COVID-19 pandemic and a long-term energy crisis. The aftermath of these two unprecedented events has had a sustained impact on the SME's (small and medium-sized enterprises) of the country, the backbone of innovation and jobs.
The pre-pandemic landscape of UK small businesses
Before the pandemic, small businesses accounted for 99.9% of the UK's private sector and provided employment for around 60% of the workforce. From small shops to tech startups to all the niche services in between, these businesses are the backbone of local communities and national economic growth.
COVID-19: The First Blow
When the COVID-19 pandemic hit in early 2020, lockdowns, social distancing measures, and supply chain disruptions sent shockwaves through the business community. Small businesses, particularly those reliant on in-person interactions—hospitality, retail, entertainment, and leisure—were hit hardest. The government introduced furlough schemes, grants, and loans to help mitigate the damage, but for many, it wasn’t enough to offset the catastrophic revenue loss.
The energy crisis: A second devastating wave
Just as businesses began to adapt to the post-pandemic world, they were hit by a new, equally destructive crisis—the unprecedented surge in energy costs. As in many other countries, energy prices in the UK shot up in 2021 and 2022 due to various reasons including supply chain issues, war in Ukraine, and a general world energy crisis.
For small businesses already operating on razor-thin margins, this spike in operational costs became unbearable. Unlike larger corporations, SMEs lacked the bargaining power to negotiate favourable energy contracts. For many, the choice came down to cutting operational hours, reducing staff, or closing completely. The most vulnerable were the core sectors of manufacturing, agriculture, hospitality and retail because of their extreme energy dependence.
A survey conducted in 2023 by the British Chamber of Commerce revealed that nearly 70% of SMEs reported that rising energy bills were their most significant financial challenge. The government's temporary support measures, like the Energy Bill Relief Scheme, were seen as a lifeline, but many businesses reported that the assistance was insufficient or arrived too late. Without long-term solutions, the energy crisis became the final nail in the coffin for millions of businesses still reeling from the effects of COVID-19.
The devastating numbers
The combined effects of the pandemic and energy crisis have led to the disappearance of nearly half a million of the UK’s small business industry. A staggering number of businesses have shut down, leaving millions of workers unemployed or forced into alternative, often precarious forms of employment. The Office for National Statistics (ONS) reports that 250,000 plus businesses closed for good between 2020 and 2024, and this trend does not seem to be stopping.
How Small Businesses are Fighting Back
However, some small businesses are managing to not only survive but be successful in this huge competitive world. Innovation, diversification, and digital transformation have been critical strategies for those that made it through the storm. The pandemic forced the transition to online services, e-commerce and the businesses that could make the quick switch to digital first have been able to survive.
Like for instance, small retailers who have transferred their business to the internet report a more loyal customer base, and service providers such as consultants, personal trainers, and teachers have made the transition to remote quite well. Even local governments and business support organisations have gotten involved, providing guidance, grants, and education to assist businesses in transitioning to this new world.
Also, there has been a resurgence of "localism" with the "shop local" campaign, as shoppers and communities realise how vital it is to sustain the small establishments. Crowdfunding campaigns, cooperative models, and community-led initiatives are becoming more common as ways to help local businesses stay afloat.
The road ahead: Is there a future for small businesses?
Although the problems that the small business world faces are very real, there are some silver linings to the clouds. The UK government has however pledged more focused help for SMEs, especially in the areas of energy efficiency and availability of low cost credit.
Also, there seems to be an increasing awareness of the necessity for stronger, greener business models that can better absorb the blows of the economy.
But systemic change will be required if the future of small business in the UK is to be assured. These would include stronger safeguards against escalating energy costs, less rigid taxation, and a wider digital infrastructure so that companies can accept e-commerce and telecommuting with open arms.
With half of the UK's small business sector that has vanished since 2020, it's easy to see how fragile the economy is against global crises. The pandemic and energy crisis has crippled the industry, and destroyed so many people's lives and lifestyles, and completely changed the face of many communities. Although some businesses have managed to adapt and survive, countless others have perished, leaving a permanent mark on the UK's economy.
It will require a strong commitment from the government and the communities themselves to rebuild and revitalise the small business. Without it, the disappearance of SMEs could have far-reaching consequences for employment, innovation, and the overall economic health of the country for years to come.
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