Winning Back Shopfront Britain: Building a level playing field for a political and economic powerhouse
By Jade Azim, Head of Policy and Advocacy at The Good Growth Foundation
Executive Summary
Shopfront Britain - the UK’s 5.7 million small, medium and micro-businesses across high streets, digital marketplaces and supply chains - is one of the country’s most significant economic and political forces, employing around 60% of the private sector workforce and representing nearly one in three voters.
There is overwhelming public support for policies that back SMEs. For many voters, the health of small businesses is inseparable from the health of their communities - with thriving shopfronts seen as visible proof that growth is being felt locally.
61% of Britons identify supporting small businesses as a top priority for high street success, suggesting that any government championing SMEs aligns itself with deeply held public values around hard work and local prosperity.
Yet, Shopfront Britain is under strain. Across our polling and focus groups, SME owners and employees describe a system that too often favours larger, top-heavy firms - creating a ‘growth trap’ that discourages expansion.
Structural barriers include:
Outdated tax thresholds such as the VAT cliff edge, which disincentivise growth.
A persistent ‘missing middle’ in finance that strands scale-ups.
Late payments draining an estimated £11 billion annually from the economy.
Procurement systems perceived to reward administrative capacity and connections over merit and local impact.
Public procurement in particular has become emblematic of this imbalance. Despite increased spending on SME contracts, the share awarded to smaller firms has remained stagnant at around 20%.
The hurdle facing the Government is substantial - but progress can begin with small, targeted reforms that reset incentives and send a clear signal that policymakers are on the side of hard grafters.
This report sets out a practical package to:
Level the playing field in procurement through neutral vendor models.
Remove the VAT cliff edge disincentive through tapering reform.
Bridge the ‘Valley of Death’ in scale-up finance with a reformed Great British Scale-Up Incentive.
Crack down on late payments through statutory enforcement and automated interest.
Modernise the trading allowance to support side hustlers and micro-entrepreneurs.
Extend full expensing to digital adoption and workforce upskilling.
Many of these measures are low or no cost. Together, they would unlock significant economic potential, while restoring confidence among a constituency that feels historically squeezed.
Supporting Shopfront Britain is not simply sound economics; it is sound politics. A government that visibly backs the innovators, shopkeepers and grafters of Britain stands to drive growth rooted in community and local jobs — while unlocking an underestimated reservoir of political support.
Introduction
It is in shopfront Britain that most of our day-to-day interactions with the economy take place. So it is no surprise that Britons favour policies that support micro-, small- and medium-sized businesses. Britain is a nation of shopkeepers afterall.
The true engine of the UK economy isn’t found in a boardroom in Canary Wharf. It’s found in our shopfronts. Not just the shops of brick and mortar, but every shopfront: the small businesses on the high street, the digital shopfront on Ebay, the technology products competing for contracts, and downstream suppliers. From the family-run bakery to the independent tech startup, Small and Medium Enterprises (SMEs), including microbusinesses, are the backbone of our national prosperity. There can be no good growth without empowering these businesses.
Yet, many are now at a tipping point. Pubs - once the cultural and economic anchors of our communities - are struggling under the weight of rising costs and outdated tax structures. Independent retailers face a litany of rising business rates and energy bills. Scale-ups continue to struggle to access the capital they need to grow. And voters believe something must be done.
SMEs represent the essence of good growth: growth rooted in community, providing local jobs and fostering a sense of place. This paper does not attempt to resolve every challenge facing smaller firms. The mountain of complexity with the business rates regime alone is an enormous task. Instead, we present a series of low-cost, practical measures that - taken together- could send a powerful signal to SMEs that policymakers are on their side.
The Government has already signalled some positive steps, from simplifying self-assessment to reducing administrative burdens. Here, we present a fresh package of targeted reforms to support Shopfront Britain (both digital and physical) so that British innovators, and the wider economy they sustain, can thrive.
Our research shows that Shopfront Britain is not only economically vital, but politically significant - and that policymakers who acknowledge and address its challenges stand to unlock both growth and public support.
Small Businesses, Supersized Constituency
It is no overstatement to say that SMEs are the backbone of the British economy. They employ roughly 60% of the private sector workforce - approximately 16.9 million people whose livelihoods depend on businesses with fewer than 250 employees.[1] From local high street shops to garage start ups, these enterprises provide more jobs than all of the UK's large corporations combined.
Furthermore, the sheer number of people who actually own or run these businesses is equally striking. At the start of 2025, there was an estimated 5.7 million SMEs in the UK. Crucially, the vast majority - around 4.3 million - are non-employing businesses, such as sole traders and partnerships where only the owner works. When combined with the roughly 1.4 million SME owners who do have staff, this amounts to millions of individuals who directly navigate the risks and rewards of entrepreneurship.[2]
The demographic scale turns SMEs into an incredibly potent, if sometimes fragmented, political constituency. Nearly one in three voters is either an SME owner or an employee - politicians ignore them at their peril. Unlike large multinationals that lobby through high-level corporate channels, the SME constituency exerts influence through its sheer volume and geographic spread. They are embedded in all supply chains and present in every single parliamentary constituency.
How this political weight is ultimately used will depend on the extent to which significant barriers to growth are seen to be addressed. At present - as with many voters more broadly - there is a growing perception that policymakers are not doing enough to break these barriers down. If anything, they are rising. Our research reflects this, with focus group participants expressing increasing frustration with mounting costs and an uneven playing field.
Taken together, this makes SMEs a hotly contested constituency that demands the full attention of any government serious about delivering growth.
[1] Department for Business and Trade. “Business population estimates for the UK and regions 2025: statistical release.” GOV.UK, 2025, https://www.gov.uk/government/statistics/business-population-estimates-2025/business-population-estimates-for-the-uk-and-regions-2025-statistical-release
[2] Ibid.
Shopfront Britain is a Key Voter Issue
Shopfront Britain is one of the most universally supported communities in the UK. SMEs are often seen as the pinnacle of hard graft that should be rewarded and a visible marker of a healthy high street, local economy and community. Even setting aside their size as a political constituency in their own right, our own polling and focus groups show strong public support for SMES. The health of small businesses are closely tied to perceptions of the health of the nation.
Voters favour a Government that is friendly and supportive of smaller businesses - and doing so is widely interpreted as being on the side of hard graft.
Good Growth Foundation polling found that:
61% of Britons listed providing support for small businesses in their top priorities to ensure the success of high streets.
56% chose cutting business rates or other taxes paid by local businesses.
57% of Britons believe that the Government treats larger businesses more favourably than smaller businesses - 7% do not.
This perception is even stronger among key swing voters - rising to 64% of Labour-Reform Switchers and 68% of Labour-Left Switchers.[3]
For many voters, good growth is what they see on their local high street: thriving small shops, busy streets and new businesses opening their doors.
“I would expect [with growth], perhaps some more little shops to open independent shops, you know, you know, because people aren't scared to get loans and do that at the moment. Everyone's scared to do anything, because they will go under. Our small shops being priced out of the market.” - Woman, Labour 2024 Voter, Swindon
“[Growth in Swindon means] more people on the street, more shops open and not boarded up. People spending money because they've got money to spend, so they're going into the shops.” - Woman, Labour 2024 Voter, Swindon
“With growth there's more local businesses and then I feel like there's more opportunities to get other jobs as well .” - Man, Reform Voter, Swindon
And this extends beyond what is immediately visible. The high street is no longer just bricks and mortar. A ‘hidden high street’ - made up of sole traders, side-hustlers, re-sellers and garage innovators - exists in every constituency. Yet, those seeking to get these businesses off the ground are often held back by a lack of capital, procurement barriers and heavy administrative burdens.
Across our focus groups, a clear narrative emerged: small business owners and workers feel neglected and overshadowed, watching from the sidelines as weak regulations allow top-heavy firms to game the system in a way they cannot. Participants described a landscape where the little guy is squeezed by rising costs and a lack of transparency, while large corporations can navigate a playing field made for them.
There is a profound sense of injustice regarding the tax system and access to contracts. But, SMEs aren't looking for handouts. They’re looking for a fundamental reset. One that rewards responsibility, supports visible local investment and ensures that prosperity is returned to the communities that actually generate it.
[3] Please find our polling archive here.
The Key Barriers
The current economic landscape facing the UK’s 5.5 million small and medium-sized enterprises is defined by a perfect storm of structural, fiscal and operational headwinds that collectively stifle one of the nation’s primary engines of growth.
There is ample evidence that Shopfront Britain is trapped in a cycle of cautious resilience. Rather than investing in expansion, many businesses are simply peeking over administrative burdens. Business confidence remains in a rut, with many firms reporting that the incentives to scale are increasingly outweighed by the prohibitive costs and administrative burdens of success.
The below are some of the key themes that consistently appear in our focus groups and conversations with SMEs and hosting platforms.
1) The cost-of-living
The cost-of-living crisis continues to weigh heavily on shops and retailers. Physical businesses face a double squeeze from rising energy costs and an outdated business rates system. While wholesale energy prices have stabilised since their 2022 peak, hospitality and retail firms remain uniquely vulnerable: 16% of hospitality businesses still cite energy prices as their primary concern, compared to just 4% across the wider business population.[4]
At the same time, business rates continue to penalise physical high-street presence relative to digital-only competitors, with a major revaluation due in April 2026 threatening further cost increases. Independent pubs and shops are operating on increasingly thin margins, leaving little room for error or investment in energy-efficient upgrades.
“[Growth means] the cost of living and everything else going down a bit. The cost of energy is going down. [it means]have more money in our pockets instead of the big guys at the top.” - Man, Labour Voter, Swindon
“I generally feel like the harder I work, the more I get penalised for it.” - Man, Labour-Reform Switcher, Gainsborough
[4] House of Lords Library. “Hospitality and retail sectors: Impact of government policy.” UK Parliament, https://lordslibrary.parliament.uk/hospitality-and-retail-sectors-impact-of-government-policy/
2) Administrative and procurement
Administrative burdens act as a silent ceiling for SMEs, draining the resources needed for innovation and scaling. While the Government has signaled a commitment to reducing regulatory burdens - including targets to reduce them by 25% and simplify self-assessment [5] - the daily reality for business owners remains a labyrinth of compliance.
For a small team, every hour spent deciphering shifting regulatory requirements or filing repetitive paperwork is an hour stolen from product development or strategic planning. The magnitude of this red tape is disproportionately felt by smaller players, who lack the dedicated legal and HR departments that larger corporations use.
These challenges become particularly acute in public procurement, a sector that remains notoriously difficult for SMEs to penetrate. Despite the theoretical availability of contracts from central and local government, the system is widely perceived as structurally rigged in favour of larger incumbents. Indeed, despite increased spending on SME contracts, the share of contracts awarded to SMEs has remained stagnant at 20% according to the British Chambers of Commerce.[6]
The big players possess the vast administrative capacity required to navigate grueling pre-qualification questionnaires and meet hyper-specific insurance or turnover thresholds that often have little to do with the actual quality of service. For many SMEs, the sheer volume of documentation required to even place a bid acts as a high-entry barrier that effectively "games" the market before the competition has even begun. Many businesses tell us that there is a growing perception, particularly since the COVID-19 pandemic, that networks within Government are a precursor to winning key contracts.
“The government is hopeless at awarding contracts to the right businesses and not having penalty clauses in there.” - Male, Labour-Left Switcher, Dibden
“I start thinking of all the companies that are gonna get that money, and how they're related to the government. How it's all back-scratching, and they've been lobbied, you know, have been lobbied to get this funding, and then you go into the companies, and you find out, oh, this politician's on the board of chairman of the director, and he's got this, you know. That is where it all is. [...] It's nothing to do with us, is it?” - Male, Labour-Reform Switcher, Wakefield
“I've had a lot of dealings with, you know, government and stuff, and transparency of all contracts available. Great, and I would actually say in what the tendering process is, and what the, you know, what the criteria is for awarding those contracts, because it's a lot of unscrupulous people around in the public sector. And I know a lot of bungs and bribes have gone on.” - Male, Labour-Left Switcher, Dibden
Compounding this is a persistent digital gap: only 35% of SMEs report frequent use of AI tools, with digital literacy and software costs limiting the adoption of technologies that could otherwise ease administrative burdens.[7]
[5] Department for Business and Trade. “Backing your business: our plan for small and medium-sized businesses.” GOV.UK, https://www.gov.uk/government/publications/backing-your-business-our-plan-for-small-and-medium-sized-businesses/backing-your-business-our-plan-for-small-and-medium-sized-businesses-web-version
[6] British Chambers of Commerce. “Procurement Act must quickly deliver for SMEs.” British Chambers of Commerce, 2025, https://www.britishchambers.org.uk/news/2025/05/procurement-act-must-quickly-deliver-for-smes/
[7] YouGov. “We polled UK SME leaders about AI adoption – here’s what they said.” YouGov, https://yougov.com/en-gb/articles/52730-we-polled-uk-sme-leaders-about-ai-adoption-heres-what-they-said
3) Cliff edges and tax disincentives
One of the most pervasive barriers to organic growth is the ‘VAT cliff edge’, currently set at a turnover threshold of £90,000. Research consistently highlights a ‘bunching’ effect where tens of thousands of companies - and up to a fifth of all unregistered firms trading near the limit - deliberately suppress their turnover, or even pause trading, to avoid the administrative nightmare and the immediate 20% price hike that follows registration.[8] This threshold acts as a hard ceiling on productivity, incentivising business owners to ‘stay small’ rather than navigate a complex tax system that effectively penalises expansion.
Industry bodies like the FSB[9] and ICAEW[10] have argued that without a tapering mechanism or a significant increase to the threshold, thousands of micro-businesses will continue to operate below their potential, stunting the development of the next generation of apprentices and technical leaders. Reforming this system could raise up to £80bn per year, according to the ICAEW.
At a smaller scale, the £1,000 trading allowance is increasingly viewed as an outdated constraint on the UK’s growing ‘side-hustle economy.’ Frozen since 2017, inflation has significantly eroded its real value. Consequently, even the most modest activities - like selling just £85 worth of goods a month or taking on a few weekend dog-walking clients - can trigger formal tax obligations. Because this threshold applies to gross turnover rather than profit, many hobbyists and would-be innovators find themselves dragged into the bureaucratic nightmare of the Self Assessment system despite making little to no actual money after expenses.
This creates a disproportionate administrative burden that stifles micro-entrepreneurship, forcing thousands of people to file complex tax returns and navigate HMRC’s compliance hurdles for what is often just ‘pocket money’ aimed at helping alleviate the rising cost-of-living.
[8] Tax Policy Associates. “The VAT 'cliff edge' and how to fix it.” Tax Policy Associates, 2023, https://taxpolicy.org.uk/2023/01/30/vatbrake2/
[9] Federation of Small Businesses. “VAT for Small Businesses.” FSB, https://www.fsb.org.uk/resources/policy-reports/vat-for-small-businesses-MC3PZHJIAT3RDZXG4G2KAEKHRRWE
[10] Federation of Small Businesses. “VAT for Small Businesses.” FSB, https://www.fsb.org.uk/resources/policy-reports/vat-for-small-businesses-MC3PZHJIAT3RDZXG4G2KAEKHRRWE
4) Late payments
Late payments remain a systemic failure, costing the economy an estimated £11 billion every year. The problem is more than a financial issue, it's a massive drain on human capital. SME staff waste a staggering 133 million hours annually chasing overdue invoices - time that could otherwise be spent on innovation, training or marketing. On average, affected SMEs lose £22,000 a year waiting for payment, with some sectors, like manufacturing, facing payment times exceeding 80 days.[12]
This culture of slow payment forces 38 businesses to close every single day,[13] effectively turning small firms into interest-free banks for larger corporations and the public sector. For “the grafters" of our economy, it's a state of perpetual cash-flow anxiety that prevents long-term investment in things like technology or new hires.
“SMEs definitely need prompt payment, because they go out of business, not because they're unprofitable, it's because the big businesses don't pay them.” - Man, Labour Left Switcher, Dibden
[12] Department for Business and Trade. “Late payments: tackling poor payment practices.” GOV.UK, https://www.gov.uk/government/consultations/late-payments-tackling-poor-payment-practices/late-payments-consultation-tackling-poor-payment-practices
[13] Business and Trade Committee. “Small businesses facing pressures comparable to the pandemic, Business and Trade Committee finds.” UK Parliament, https://committees.parliament.uk/committee/365/business-and-trade-committee/news/211835/small-businesses-facing-pressures-comparable-to-the-pandemic-business-and-trade-committee-finds/
5) The death valley of funding
For scale ups, capitalisation is a critical challenge. A persistent ‘missing middle' in the finance market leaves high-growth firms (HGFs) struggling to bridge the ‘Valley of Death’ between early-stage funding and major corporate debt.
SMEs also face significant information asymmetries when seeking external finance. Traditional lenders often rely on backward-looking credit scoring and physical collateral, which disadvantages modern, asset-light businesses driven by intellectual property or digital services.
As high interest rates and sticky inflation make borrowing look increasingly risky, appetite for external finance has declined - the proportion of SMEs using it fell to 43% by mid-2024.[14] Only 7% of firms that reach a £1 million in turnover manage to step up to the next milestone of £3 million, suggesting that the UK’s funding ecosystem is better at starting businesses than scaling them.[15]
These barriers are not exhaustive, but they paint a picture of the landscape that discourages risk-taking and rewards stagnation. The result is a perception among many in Shopfront Britain that successive administrations have failed to support them to grow.
The Way Through: A Package for Shopfront Britain
The Government has an opportunity to demonstrate its support through clear, practical reforms that address the key barriers facing SMEs. This would not only unlock significant economic potential across small and medium-sized businesses, but also send a strong signal that it is firmly on the side of hard grafters and the wider British public.
Whilst this is not the whole story, each of the policies we propose targets a barrier identified in this research. They are designed to unlock growth while commanding strong support among those who stand to benefit, spanning side hustlers and microbusinesses through to high-growth scale ups.
1) A more level playing field for procurement
Procurement appears in our research as a key emblem of the current problem: that larger businesses can more easily navigate a complex, ill-designed system that rewards connection and systemic knowledge.
The government could further encourage and even mandate in applicable markets the use and scaling up of Neutral Vendor Models either in-house or in partnership with others - to be used at all levels of service to ensure a neutral matchmaker between public services and small businesses, whilst also digitalising the process to be as simple as possible with less paperwork. This would match its commitments to increase SME access as laid out in the Procurement Act.
Such models are already in use in various departments, with the Department for Education using an IT Neutral Vendor Framework, and the Ministry of Justice using a neutral model for prison operators. Other Departments and some local authorities tender for third parties providers. The Ministry of Defence operates the Neutral Vendor Framework for Innovation (NVfI) model, operated by third party Constellia, for areas such as AI and robotics. Other third party providers manage frameworks up and down the country, such as Matrix’s MSTAR framework which is used for temporary staffing in the NHS and local government.
Despite these Models being in use in some areas of government, many departmental teams, local councils, NHS trusts and other bodies elect to undertake procurement themselves or use single Master Vendors, creating a fragmented, inconsistent system.
But under a neutral mandate, a Neutral Vendor Model would become the gold standard for all procurement processes, ensuring an intermediary that manages the end-to-end procurement process with approved suppliers. This neutrality is the core of the model: it removes the conflict of interest inherent in traditional contracting and ensures that opportunities are distributed based on merit and local impact. With the increasing centrality of the Cabinet Office’s Crown Commercial Service - to become the Government Commercial Agency - to central procurement, all levels of government and public service should be mandated where possible (and with exception to particularly sensitive markets or rapid needs, for example) to choose neutral procurement practices.
2) VAT cliff edge taper
The current VAT registration threshold is £90,000. Once a small business’s turnover hits that level, it will have to charge VAT at 20 per cent on every sale it makes. This immediately makes them uncompetitive compared with those with revenues below the threshold.
There is significant evidence that companies deliberately hold back their growth to stay below the threshold and not incur the tax. Data from Tax Policy Associates suggests that around 26,000 companies are caught in this trap and stalling their growth for fear of breaching the threshold. A Warwick University study found that small firm turnover slowed significantly when nearing the threshold and was likely to be a ‘real response’ rather than evasion. This structural growth disincentive creates a host of negative economic effects for individuals, firms and the treasury.
In reality, this means traders, businesses choosing to restrict opening hours, going on extended holiday toward the end of the tax year, etc. Ending or at least reducing this cliff edge will incentivise growth and entrepreneurship, reduce price distortions and improve market competition.
The policy could be implemented with a tapered rate of VAT for firms with revenues above £50,000. The rate would start at 5% and increase at 5% increments every £10,000 above £50,000 until reaching the full rate at 20% at £90,000.
This policy is not only pro-growth but also won’t represent any greater burden for self-employed business administration, given the new Making Tax Digital requirements for quarterly reporting of income for self-employed individuals earning over £50,000.
Additionally, there is potential to raise the 20% threshold with the revenue generated from capturing the firms earning £50,000-90,000.
3) The new Great British Scale Up Incentive
The valley of death of funding needs bridging: reforms to relief could be key. Even with reforms from the previous Budget, existing scale up schemes - specifically the EIS (Enterprise Investment Scheme) - are less generous and more complex than their counterpart, the SEIS or Seed Enterprise Investment Scheme.
The Great British Scale-Up Incentive (GBSUI) would replace the standard EIS, retaining its structure but simplifying the rules, increasing the headline tax relief, and fundamentally addressing the complexity that deters many investors and companies. This new scheme would modify the EIS in several ways:
Removal of other reliefs for income focus: Income Tax Relief and Loss Relief only. CGT exemption and general IHT relief are removed to simplify the scheme and focus on investment-as-cash-flow;
Offer a 40% relief (compared to the existing 30%), moving it more in line with SEIS. This could include an enhanced rate for companies in designated regions or sectors, or those operating as B-Corps or Mutuals;
Potentially increase the Individual Annual Limit to £2m, the KIC Annual Limit to £3m. The Company Lifetime Limit could also be raised to up to £10m;
Removes the Risk To Capital complex conditionality for businesses to qualify, to instead replace this with a simplified growth test where a certain percentage of funds raised by the scale-up should be spent on R&D, capital expenditure or staff recruitment over a two-year window;
Simplified UK establishment eligibility test: Simplifies eligibility to focus purely on UK registration and Corporation Tax payment, reducing administrative friction and aligning with the pro-enterprise culture;
Increase and standardise the Age Limit to 10 years.
The new Scheme parameters could also explicitly include and benefit B Corps and mutuals, addressing a key gap in the current landscape and signalling a commitment to supporting a model of capitalism that prioritises social and community value alongside financial returns.
This is a move to intentionally redesign the investment landscape to encourage long-term growth and capital retention. By creating a generous, SEIS-style (Seed Enterprise Investment Scheme) incentive for the critical scale-up phase, the government would send a powerful market signal: that Britain is a place not just to start a business, but to grow one.
The current EIS scheme is projected to cost the Treasury £3.4bn across 2024-25, but this includes all reliefs such as CGT. We suggest only increasing the Income Tax Relief, which is projected to cost at its current discount £570m in this time period (as per Government figures). Increasing this relief by an initial 10% would mean the overall cost would be £627m (excluding removal of other reliefs), representing a humble yearly increase, but not telling the entire story.
We suggest raising a revenue measure that exceeds this to account for significant expected behavioural change, plus if the Limits were to be increased as above, as our model does not account for any behavioural impact (for example, an increase in investment activity given the greater tax incentives).
4) Late payment crackdown
The Government should transition from a voluntary Prompt Payment Code to a mandatory Statutory Payment Protocol for all large enterprises and tier-one contractors. Under this regime, any business with over 250 employees must legally settle undisputed invoices from Small and Medium-Sized Enterprises (SMEs) within a maximum of 30 days. To ensure compliance, the Small Business Commissioner will be granted enhanced ‘investigatory and fine-levying’ powers. This includes the authority to audit the payment records of any firm reported by an SME and to issue public Failure to Pay notices, which will disqualify offending companies from bidding on any public sector contracts for a minimum of 24 months.
To further safeguard liquidity, the government should introduce an Automated Statutory Interest (ASI) mechanism. This removes the social friction of SMEs having to ask for interest; instead, accounting software protocols and banking APIs could be integrated to automatically calculate and apply interest to any payment processed after the 30-day window. Furthermore, ‘pay-to-stay’ or ‘early settlement discount"’clauses - where large firms charge small suppliers to be on their "preferred" list or to be paid on time - should be classified as unfair contract terms and rendered legally unenforceable.
By treating late payment as a regulatory breach rather than a private contractual dispute, the state ensures that cash flow remains the lifeblood of the national economy.
5) The Side Hustle Boost: trading allowance reform
‘Side hustles’ through reselling or small trade is an increasingly busy market, with freelancers increasingly taking on small jobs to combat the cost of living. In turn, these small hustlers may find that they wish to scale up their venture.
Currently, these traders benefit from a trading allowance - a tax-free amount of £1,000 before they have to declare. This current threshold, however, has remained static since its introduction in 2017, and not since accounting for rising inflation and costs. In many cases, and because both cannot be claimed simultaneously, many of these traders will choose relief on their expenses which often exceed this amount.
Business platforms from ebay to Etsy have advocated for a tripling the tax-free trading allowance to £3,000 to represent the change in the market since this time - both in terms of inflation but also the rise of digital reselling platforms. Increasing this allowance is the most popular policy ask among eBay sellers, especially those identifying as ‘side hustlers’: it's ranked first by 63% of them.[16]
We propose opening a fresh review of this threshold to ensure it meets the modern market and invite the Government to open up a new consultation with businesses on the correct threshold for this emerging market of side hustlers to innovate without burden.
[16] eBay Business Survey 2025.
6) Full expensing for digital adoption
The costs and administration of adopting AI and other advanced digital technologies have proven to be a barrier, and with the rates of private sector investment being persistently low, investment needs to be made more attractive.[17]
One option could be to extend full expensing to the purchasing and maintenance of software. The focus of full expensing on physical capital so far has somewhat weakened the propensity to adopt cloud computing, big data, and AI.[18]
This tax relief should not just be extended to software, but also apply to the operating costs of those services and technologies. Many key digital assets operate on a subscription basis, and therefore, the financial barrier to uptake is not just upfront, but also in the long term. Expensing could be further expanded to skills courses for the upskilling of workforces for utilising these technologies.
[17] https://cep.lse.ac.uk/pubs/download/special/cepsp50.pdf
Conclusion
Britain is a nation of shopkeepers. The community is diverse, modern and huge. It is popular. But, it is struggling.
Shopfront Britain - the 5.7 million small, medium, and micro-businesses that define our high streets, digital marketplaces and supply chains - is the indispensable engine of the UK economy. Employing approximately 60% of the private sector workforce, these enterprises provide more jobs than all of the UK's large corporations combined and represent a potent, often overlooked political constituency of nearly one in three voters. Our conversations show the depth of concern on overcoming enormous hurdles.
Our research also shows that supporting these businesses is a top priority for most Britons, who see them as the heart of their communities and a reflection of hard graft. Indeed, 61% of the public identify support for small businesses as a leading priority for high street success, signalling that any government championing this sector aligns itself with deeply held public values.
Unlocking the full potential of these businesses - and the political dividend that comes with doing so - will require a meaningful economic reset. Policymakers have a unique opportunity to win over a constituency that feels squeezed by a system perceived to favour larger, top-heavy firms. There is clear reward for a government that can send an unmistakable signal that it stands with innovators and entrepreneurs.
Our proposed reforms respond directly to the sense of injustice many SME owners feel about the current tax and regulatory landscape. Acknowledging the hardships facing Shopfront Britain is not only sound economics; it is a vital political strategy. Policymakers who pay heed to these grafters can unlock an underestimated reservoir of political support - while fostering an economy rooted in community, local jobs, and deserved reward.
