UK firms at risk as protections weaken

The number of private sector businesses in the UK fell by 8% over the past year. Nearly a quarter of small and medium-sized enterprises face collapse if a key person leaves, according to new research.

At the start of 2025, the UK had 5.7 million private sector businesses, including 5.64 million small firms with 0 to 49 employees. Over the last 12 months, 78,650 businesses joined the register while 83,195 were removed.

Business protection gaps leave SMEs vulnerable

A study by Scottish Widows found the decline may stem from inadequate business protection. Nearly one in four SMEs stated they wouldn’t survive long without a critical team member like a founder or key employee.

For many small firms, losing a single individual can halt operations, cut revenue, or trigger loan defaults. Few have insurance or succession plans to soften the financial blow. The findings highlight whether current support measures are sufficient for long-term stability.

A wave of closures could affect local economies, impacting suppliers, landlords, and workers. While the data doesn’t specify which sectors face the greatest risk, retail, hospitality, and professional services—where personal relationships drive income—are likely among the most exposed.

Regulatory double standards in financial services

The issue of business protection emerges as financial services firms face stricter oversight. Investment professional and author Jenny Segal compared leniency in some high-profile cases to the rigid rules governing advisers.

“Imagine an adviser at your firm accepted a large sum from someone who could sway their professional decisions,” she wrote. “Imagine they didn’t report the gift to compliance. And imagine they kept working because clients liked them.”

In financial services, such a situation would violate regulations. The Financial Conduct Authority enforces strict standards on conflicts of interest and conduct. Yet outside the sector, similar lapses often go unaddressed, creating concerns about uneven enforcement.

Segal argued this isn’t just about fairness. Trust erodes when businesses handling others’ money aren’t held to high standards. The same applies to business protection. Without planning for worst-case scenarios, the fallout could extend beyond individual companies.

Economic pressures and future risks

The drop in UK businesses reflects broader economic challenges: rising costs, tighter lending, and changing consumer habits. Business protection hasn’t been a central discussion point, though its absence may worsen the trend.

The study offered no policy recommendations. But addressing the protection gap could help steady business stability moving forward.