Originally posted https://professionalbeauty.co.uk/small-business-strategy-report-beauty-salons-smes-2026
MPs are calling for urgent reform to support small businesses, including hair and beauty salons.
Small businesses are facing cost pressures “as severe as the Covid-19 pandemic” and, in some cases, worse, according to a new parliamentary report on the Government’s Small Business Strategy.
The Business and Trade Committee has published its Small Business Strategy report, setting out a roadmap for reform ahead of the Government’s long-awaited Small Business Strategy. For salon owners grappling with rising employment costs, VAT thresholds, business rates and energy bills, the findings make for sobering reading – but also outline potential policy changes that could directly affect the future of small beauty businesses.
What is the Small Business Strategy and Why Does it Matter to Salon Owners?
At the Autumn Budget 2024, the Government announced it would publish a Small Business Strategy “setting out the Government’s vision for support for small businesses”. That strategy was published in July 2025 as 'Backing your business: our plan for small and medium-sized businesses'.
To scrutinise that plan and shape future policy, the Business and Trade Committee launched an inquiry in June 2025. The inquiry closed in July 2025, and the final report was published on February 11, 2026.
The Committee examines the work of the Department for Business and Trade and makes recommendations that can influence legislation, spending and regulation. In this case, it has assessed whether current policy will genuinely improve SME cashflow, reduce costs and support economic growth.
For small salons, this matters because:
- The report directly references pressures in the hair and beauty sector
- It examines VAT, business rates, late payments, energy costs and skills
- It recommends changes that could alter how small salons are taxed, paid and supported
While the Government is not legally bound to adopt the Committee’s recommendations, select committee reports often shape amendments, future legislation and funding decisions.
SME Confidence at Historic Lows as Costs Outpace Revenues
The report describes small and medium-sized enterprises (SMEs) as the “backbone of the UK economy”, noting that 99.9% of UK businesses are SMEs, generating 60.6% of private sector employment and 48.4% of turnover.
However, it warns that confidence is at a historically low level across key sectors, including cafés, shops and the hair and beauty industry.
Business owners told MPs that they are facing a “perfect storm” of:
- Late payments
- Increased labour costs
- A complex tax system
- High energy prices
- Rising crime
- High street vacancy rates
Crucially, many said they can no longer pass on rising costs to customers. The report notes that for everyday services – such as £100 haircuts – the ceiling of what consumers are willing to pay has been reached. That means every new cost increase directly erodes profit margins.
Late Payments: “Cashflow is King” for Small Salons and SMEs
One of the strongest themes in the Small Business Strategy report is late payment. The Committee found that late payments alone are closing 38 UK businesses every day. SMEs are owed tens of billions of pounds in unpaid invoices, with nearly half of all invoices paid late.
The report concludes: “Cashflow is king.”
For beauty salons supplying services to larger organisations – for example, working on contracts, events or through supply chains – delayed payment can quickly trigger cash shortages.
The Committee recommends:
- Accelerating new late payment legislation
- Mandating 30-day payment terms by the end of this Parliament
- Requiring large suppliers to have a Fair Payments Code Gold award
If implemented, these reforms could improve cashflow security for small beauty business owners working with larger partners.
Public Procurement: A Missed Opportunity for SMEs
Public procurement – Government spending on goods and services – totalled £341bn in 2023/24. Currently, just 20% of that spend goes to SMEs. The Committee argues that if 30% of procurement spending went to SMEs, it would generate an additional £22.7bn a year in revenues for small businesses.
While this may feel more relevant to construction or tech firms, the principle is clear: greater access to public contracts could diversify revenue streams for SMEs, including in the personal care and beauty services sector.
The Committee recommends setting a 30% direct spend target with SMEs by 2028.
VAT Threshold: A “Huge Cliff Edge” for Hair and Beauty Businesses
The VAT threshold is one of the most contentious issues for small beauty businesses. Firms must register for VAT once turnover hits £90,000. The report describes this as a “huge cliff edge” that can act as a significant disincentive to growth.
Evidence highlighted that:
- Around 26,000 businesses are estimated to be holding back growth to avoid crossing the threshold.
- Labour-intensive sectors such as hair and beauty are disproportionately affected because wages – their main cost – are not VAT reclaimable.
- Half of hair and beauty services sit in the £50,000 to £99,000 turnover band, more than double the economy average.
The Committee heard that this dynamic is contributing to rising self-employment models in the sector, including chair rental, and concerns around disguised employment.
While there was no consensus on reform, proposals discussed included:
- A tapered VAT system above the threshold
- Raising or lowering the threshold
- Phased entry to full VAT liability
For salon owners close to the VAT threshold, any reform in this area could significantly affect pricing, staffing models and growth plans.
Business Rates Reform: “One of the Most Urgent Failures”
Business rates are described in the report as one of the most urgent failures in the tax system. The Committee heard that rates are based on property values rather than turnover, meaning smaller firms can be hit harder than larger competitors occupying similar premises.
For high street beauty salons, where rent and rates are already a major fixed cost, this model can feel detached from actual trading performance. Although recent reforms were acknowledged, the report warns that for many businesses, the “best-case outcome is standing still. For others, it is closure.”
The Committee calls for tax reform that lowers compliance costs and encourages growth.
Energy Costs: Margins Directly Eroded in Hair and Beauty
Energy costs are another major concern for small beauty businesses.
The report notes that average electricity costs in 2024 remained nearly double their rate three years earlier. It also highlights evidence that for sectors like hair and beauty, nine in 10 businesses say energy costs are directly eroding their margins. Small firms often pay more per unit than large users and face weaker protections in the energy market.
The Committee argues that SMEs need:
- Tailored relief
- A more transparent energy market
- Stronger protections
For salon owners reliant on lighting, heated tools and treatment equipment, energy pricing reform could be critical to long-term viability.
HMRC, Making Tax Digital and Administrative Burden
The report also warns that the tax system is becoming more complex and administratively burdensome.
The Federation of Small Businesses estimated that tax compliance costs the small business community 242 million hours and nearly £25bn each year.
Making Tax Digital (MTD), particularly its extension to income tax, was criticised for increasing the burden through quarterly reporting requirements and third-party software costs.
The Committee recommends:
- Publishing a baseline assessment of SME administrative costs
- Reducing tax compliance costs by 25% by the end of this Parliament
- Extending the rollout period for Making Tax Digital for income tax
- Reducing quarterly reporting requirements
For small beauty business owners managing bookings, staff and stock, reducing administrative burden could free up valuable time and resources.
High Street Regeneration and Crime: Additional Pressures on Salons
The report highlights that 38 stores closed every day across Great Britain in the first half of 2024.
Retail crime was described as a “direct tax on trade”, with businesses funding their own security measures and then facing higher business rates as a result. For high street salons, which rely on footfall, safety and local vibrancy, these wider structural issues directly affect trading conditions.
The Committee calls for clearer ownership data, stronger enforcement and better national-local coordination on regeneration.
What Happens Next?
The Small Business Strategy report is not the end of the process. The Committee states that this inquiry “marks the start, not the end, of our scrutiny” and that it will return to these issues throughout the Parliament.
For small salon owners, the key takeaway is that:
- Parliament has formally recognised the scale of pressure facing SMEs
- The hair and beauty sector was explicitly referenced in evidence
- VAT, business rates, late payments, energy costs and tax administration are all under active scrutiny
