Bank urges government to provide policy clarity and boost business confidence
Barclays has called on the government to rule out further tax increases for small and medium-sized enterprises (SMEs) in the upcoming November Budget, warning that continued uncertainty could further erode business confidence and hinder investment.
The bank’s latest analysis indicates that apprehension about potential tax rises and a lack of confidence are deterring SMEs from investing, despite their willingness to do so. Earlier in the month, C.S. Venkatakrishnan, chief executive of Barclays, expressed firm opposition to suggested tax increases on UK banks, warning that these actions could result in lower lending and job losses across the industry.
In its latest report, Barclays estimates that if SMEs matched the investment rates of larger firms, approximately £60 billion in additional investment could be generated annually for the UK economy.
Recent figures show that while business investment reached a record high in 2024 and grew by 3% year-on-year in the first half of 2025, this growth has been driven primarily by larger companies. SMEs, which account for 52% of national turnover and 60% of employment, have lagged behind in both confidence and capital spending.
According to the Barclays Business Prosperity Index for the second quarter of 2025, only 36% of SMEs reported a positive outlook on the current economic climate, down from 48% in the third quarter of 2024. The report also found that 53% of SMEs plan to increase investment over the next year, compared to 67% of large companies. On average, SMEs intend to raise investment by 4.8%, while large firms expect a 10.2% increase.
Barclays identified three main factors influencing SME investment: overall economic confidence, the need to remain competitive amid rising costs, and expansion plans. However, many SMEs remain cautious, prioritising immediate challenges and showing reluctance to take on debt in the face of ongoing uncertainty.
“This report highlights the untapped potential for growth within the SME sector,” said Abdul Qureshi, managing director at Barclays business banking. “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.”
The report also recommends that the government set a clear target to raise the national investment rate from 17% of GDP in 2024 to 22% by the end of the current Parliament, bringing the UK in line with the G7 average. Barclays also suggests enhancing data collection on business investment, particularly for smaller SMEs, and expanding the government’s digital Business Growth Service to include an “Invest to Grow” hub offering consolidated resources and practical tools.
Barclays further urges the government to make business confidence a specific policy goal and to provide a stable policy environment to encourage investment.
“Short-term economic shocks like rising energy prices and broader inflationary pressure make it much more challenging for smaller businesses to plan for their future growth,” said Matt Hammerstein (pictured top), chief executive of Barclays’ corporate bank at Barclays. “Even small improvements in SMEs’ appetite to invest could have transformational impacts for the UK economy.”
“Boosting investment is core to driving growth in the UK. The government’s recent Industrial Strategy and Plan to support SMEs, along with data showing that larger businesses are increasing investment, are positive steps in the right direction. Yet, 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.”
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