Small businesses across Britain are holding back on investment because of worries over the economy, tax policy and rising costs, leaving billions of pounds of growth potential untapped, according to new analysis by Barclays.

The bank said that if small and medium-sized enterprises (SMEs) invested at the same rate as larger corporates, an additional £60bn could flow into the UK economy each year. Business investment covers spending on assets such as buildings, machinery and intellectual property – all of which are crucial for driving long-term growth.

The study drew on Barclays’ own customer data from around a million SMEs and a quarter of UK corporates, alongside official government figures. It found that while many smaller firms have the appetite to expand, they remain reluctant because of low confidence and uncertainty about policy direction.

Concerns include the ability to service debts, the prospect of further tax hikes and the wider economic climate. Confidence has been hit particularly hard since last year’s autumn budget, which raised national insurance contributions and business rates.

Between the third quarter of 2024 and the second quarter of 2025, the proportion of SMEs feeling positive about the climate fell from 48% to 36%, according to Barclays.

The bank said the government should provide reassurance that no further increases to business taxes are planned and adopt a more consistent approach to policy. It argued that boosting confidence should become a deliberate priority, helping to dispel perceptions that borrowing to invest is overly risky.

Matt Hammerstein, chief executive of Barclays’ corporate bank, said: “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. SMEs have huge potential to invest and grow, but confidence needs to be restored with greater long-term policy certainty. Even small improvements in SMEs’ appetite to invest could have transformational impacts for the UK economy.”