Most Small Traders Earn Less Than the Wage They Must Pay Staff

The National Living Wage is £12.71 an hour. Most people who own a small business in Britain are paying themselves about £7.75.

That figure comes from Enterprise Nation’s Small Business Barometer, published in late August alongside a new partnership with NatWest. It is not a measure of profit or of drawings in a bad month. It is what most owners take, in a normal year, from a business they own outright.

The arithmetic behind it is simple and unpleasant. Under £20,000 a year, divided across an average working week of 49.6 hours, produces a rate that would be unlawful to pay an employee.

Nobody Is Breaking the Law Here

It is worth being clear about why this is legal, because the mechanism explains the whole problem.

Minimum wage law protects employees. An owner-director or a sole trader is not an employee of their own business in that sense, and takes whatever is left after everyone else has been paid. Staff wages, rent, stock, insurance and tax all come first by law or by necessity; the owner is the residual claimant.

In a good year that residual is the reward for the risk. In a squeezed one it is simply what is left, and three in four small traders are now on the wrong side of that line.

The 49.6-hour average makes it sharper still. These are not part-time operations winding down. They are people working roughly a quarter more than a standard week for less per hour than the law requires them to pay the person behind the counter.

Funding Appetite Fell From 63% to 40%

The second finding is the one with the longer shadow. Only two in five small firms now plan to seek external funding in the coming year, down from a peak of 63%.

That is usually reported as a confidence story, and it partly is. But a drop of that size in the number of firms even asking is not mainly about optimism. It is a rational response to the price and difficulty of credit, and to the experience of firms that asked recently and were refused.

A business that has decided not to seek funding has, in effect, capped its own growth at whatever it can finance from cash flow. That is a safe decision for the individual firm and a poor one in aggregate, because the investment that would have raised productivity simply does not happen.

It also compounds the pay problem. An owner funding expansion out of retained earnings is an owner not paying themselves, which is one reason the two findings in this barometer belong in the same paragraph rather than separate press lines.

£26bn Is Sitting in Someone Else’s Account

Underneath both numbers is the cash-flow problem the report puts at around £26bn in unpaid invoices at any one time, with two in five small traders paid late last year and some 2.2 million affected.

Aaron Asadi, Enterprise Nation’s chief executive, described the mechanism without softening it: “Billions of pounds of working capital is being lent, interest-free and involuntarily, by the smallest firms in the country to some of the largest.”

That framing is exact. A ninety-day payment term is a loan from the supplier to the customer, priced at zero, arranged without negotiation. The supplier then borrows at whatever rate the market offers to cover the gap, which is the same market that has just made them decide not to seek funding.

The scale is separately documented: late payment now costs around £11bn a year, with one in five firms simply writing the money off. Legislation capping payment terms at a maximum of sixty days is in progress, which will help at the margin without changing the underlying incentive.

Two Contradictory Things Are Both True

The uncomfortable part of this data is that the sector is simultaneously enormous and poorly rewarded.

Britain has 5.7 million small traders and the report credits them with £2.8 trillion of economic activity. That is not a marginal cohort; it is most of the country’s businesses and a very large share of its employment.

Both facts hold at once because scale in this sector comes from the number of firms rather than the size of any of them. Five million businesses each clearing a modest margin add up to an enormous total and to five million individually thin balance sheets, and policy tends to be written for the total.

That is how a sector can be described as the backbone of the economy in one sentence and be found paying its owners below the legal minimum in the next, with nobody having said anything false.

It also explains why sentiment indicators have been so weak, with small business confidence at the weakest level the FSB has recorded. Confidence measures capture how it feels to run one of these firms, and the pay data says how it actually is.

What the NatWest Partnership Does and Does Not Fix

The report arrived with a commercial answer attached, which is worth assessing on its own terms.

Enterprise Nation is expanding from 170,000 to 240,000 members through the tie-up, offering access to the NatWest Accelerator network across twelve physical hubs, with a stated ambition of saving entrepreneurs more than a million hours a year and unlocking around £30m in productivity gains.

Darren Pirie, who heads the NatWest Accelerator, put the rationale broadly: “Entrepreneurs are vital to driving innovation, creating jobs and powering economic growth across the UK.”

Advice and time savings are real benefits, and a million hours across a membership of that size is a meaningful number. But the constraint identified in the barometer is not primarily a knowledge gap. It is £26bn of working capital held by customers, and an owner’s hourly rate that sits four pounds below the legal floor.

Mentoring does not release an unpaid invoice. It can help a firm price better, chase harder and choose customers more carefully, which matters at the margin, and the honest read is that it addresses a real problem that is not the binding one.

The Question the Number Raises

There is an awkward question inside this data that the report does not ask directly.

If someone works 49.6 hours a week and takes home less per hour than the law requires an employer to pay, in what sense is the business rewarding them for the risk they carry? The classic case for accepting a thin income from your own firm is that you are buying an asset, and that the asset will eventually be worth something. That holds for a business with equipment, a lease, a book of contracts or a brand.

It holds far less well for a sole trader whose only real asset is their own time, and that description covers a substantial share of the 5.7 million. For those firms the sub-living-wage income is not an investment phase. It is the steady state, and there is no exit at the end of it.

The distinction matters because the two groups need different things. A firm building an asset needs capital, which is precisely what the funding data says it has stopped seeking. A firm that is essentially one person selling their labour needs bargaining power and prompt payment, which is what the £26bn figure says it does not have.

Policy tends to treat both as a single category called small business, and support is designed accordingly: advice, networks, growth programmes. Those are aimed at the first group. The barometer suggests three in four of the people in the data are closer to the second.

None of which argues that these are not real businesses. They are, and they generate the £2.8 trillion the report attributes to them. It does mean the headline figure is measuring something more like the price of labour in the smallest firms than the profitability of enterprise, and those two things call for different remedies.

What Would Actually Move the Number

Three things would change the owner’s hourly rate, and they are of very different sizes.

The first is payment discipline with teeth. A sixty-day statutory cap is progress; automatic, non-waivable interest that a large customer cannot quietly negotiate away would be more. The current regime relies on a small supplier being willing to invoice interest to a customer it cannot afford to lose, which is why it is so rarely used.

The second is credit that is worth applying for. A 63% to 40% collapse in funding appetite is a market telling you that the expected value of asking has fallen below the effort of asking. That is fixable, but not by encouragement.

The third is the one nobody controls: demand. An owner on £7.75 an hour does not have a pricing problem that a better spreadsheet solves, and in most cases does not have room to raise prices without losing volume.

For anyone running one of these businesses the practical takeaway is narrower and more immediate. Cost the owner’s time explicitly at a real hourly rate and put it into the quote, because a business that prices its founder’s labour at zero will keep producing exactly the number this barometer measured, however long the hours get.

About The Author

Will Lisil

Founder of MW3.biz, building technology that empowers creators and democratising access to digital tools.

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