Written evidence submitted by Xero
Xero welcomes the opportunity to contribute to the Treasury Committee's call for evidence on the Government's Financial Inclusion Strategy.
As a global small business cloud platform trusted by over 1.2 million UK small businesses — around one in five of the nation's small business population — we are uniquely positioned to understand both the extraordinary potential and the persistent barriers facing would-be entrepreneurs and the smallest businesses in our economy.
Whilst the Financial Inclusion Strategy makes welcome progress on consumer financial inclusion and education, it fails to consider the entrepreneurial pipeline and existing small business owners. With 5.7 million private sector businesses in the UK — of which 99.8% are small businesses employing 0-49 people, and 4.3 million are non-employing businesses — addressing enterprise financial confidence gaps is essential to the Government's growth mission. SMEs account for approximately 60% of total private sector employment, yet financial literacy support and inclusion initiatives remain focused on consumer needs rather than business capability.
Government data reveals a structural shift in the UK business population that makes this gap even more urgent. Over the past year, non-employing businesses grew by 201,000 (4.9%) whilst employing businesses decreased. This means 75% of all UK businesses are now sole traders or self-employed individuals, facing financial confidence barriers with no in-house support or finance team to rely on.
Our research reveals a financial confidence paradox at the heart of the small business economy. Whilst 83% of small business owners claim confidence in managing finances, 74% have made significant financial mistakes. This gap costs productivity, growth opportunities, and business survival. Two in five small business owners don't know if they were profitable last month. More than half struggle with cash flow management. This is not sustainable for an economy that depends on unleashing the potential of millions of would-be entrepreneurs currently held back by preventable financial confidence gaps.
We urge the Committee to consider four key policy recommendations that would strengthen the Financial Inclusion Strategy's impact on entrepreneurship and small business growth:
These recommendations draw on Xero's research into financial confidence among small businesses, our work supporting the Government-backed Small Business Britain Maple Review into barriers to entrepreneurship, and the findings of the Xero Financial Confidence Taskforce — an independent group of academics, accountants, bookkeepers, charities, and education leads. We believe these measures would strengthen the Financial Inclusion Strategy's contribution to the growth mission by addressing the entrepreneurial financial exclusion that currently limits business creation and productivity.
We offer to support the Committee's work with data, case studies, and practical implementation insights.
Yours sincerely,
Kate Hayward
Managing Director, Xero UK
Xero is a global small business cloud platform that makes financial management easier, faster, and clearer by bringing together essential tools for accounting, payroll, payments, and workforce management in one easy-to-use place. Trusted by over 1.2 million UK small businesses — and 4.4 million worldwide — our mission is to make life better for small businesses and their accountants and bookkeepers. We automate admin, help people get paid faster, integrate with over 1000 apps with our innovative open API and enable UK small businesses to get back to what they love.
In the UK, Xero helps small businesses manage over £3.7 billion transactions a day, worth £1.4 trillion annually. Our Xero Small Business Insights (XSBI) data provides near real-time indicators on sales and jobs across regions and sectors, giving a line of sight into the UK small business economy. This aggregated and anonymised data, combined with our international experience of successful small business policy and digital adoption programmes, means we can offer both strategic insight and practical implementation support to champion small businesses.
Current discourse on financial inclusion focuses predominantly on consumer needs: banking access, savings, credit, and debt advice. However, entrepreneurial financial exclusion is overlooked. The barriers preventing people from starting and running businesses are a gap in financial inclusion provision that directly undermines the Government's growth mission.
Our evidence reveals a confidence-competence gap among small business owners. Xero’s research shows that 83% of small business owners express confidence in managing finances, but that 74% have made significant financial mistakes. Among accountants and bookkeepers working with small businesses, 56% believe entrepreneurs start up with insufficient financial skills. This disconnect between perceived and actual capability creates a false sense of security that leads to avoidable errors, missed opportunities, and business failures.
The effects of this gap are significant:
● 2 in 5 SMEs don't know if their business was profitable last month.
● Over half of small businesses struggle with cash flow management.
● Over half are caught off guard by unexpected costs.
● A third do not claim all the expenses they are eligible for.
● Almost a quarter are not setting aside enough money to pay taxes.
These are not edge cases; these are mainstream challenges facing millions of businesses that collectively employ 60% of the private sector workforce.
These barriers disproportionately affect those the Government is committed to supporting. Women are more likely than men to feel that they're 'not a numbers person' (32% versus 22%), and more likely to be too afraid to ask financial management questions (26% versus 16%). Among 18-34 year olds, 38% say they're not numbers people and 35% lack necessary financial skills. With Government data showing a ‘concerning decline’ in income social mobility in recent years, these financial confidence barriers compound economic disadvantage and prevent talented individuals from pursuing entrepreneurship, representing a major barrier to inclusive growth. Addressing this dimension of financial inclusion is essential to ensuring everyone with talent and ambition can participate in wealth creation, regardless of their background.
Yes. The Financial Inclusion Strategy makes important progress in some areas but has a significant and economically costly gap: it does not adequately address enterprise financial literacy and the financial confidence needed to start and grow businesses.
The Strategy succeeds in recognising financial capability's importance and making financial education compulsory in primary schools in England. However, it focuses on preparing people as consumers and employees, not on creating economic value through entrepreneurship. There is no pathway connecting school financial literacy to business capability, and no specific focus on financial confidence for entrepreneurs.
The entrepreneurial pipeline is fundamentally under supported. Our research shows that 70% of small businesses say almost no attention is paid to financial literacy in the education system. Students are not taught to think about starting businesses as a viable career path. The focus in education remains on 'getting a job' rather than creating jobs through entrepreneurship. Without explicitly including business financial confidence in the curriculum, students leave education unprepared to start a business. There is no culture that celebrates entrepreneurialism as aspirational, and the UK is particularly bad at celebrating business success, with two-fifths of business owners never taking time to celebrate wins. This stands in stark contrast to other countries where entrepreneurial success is recognised and valued, creating role models that inspire the next generation.
An economy where talented individuals cannot convert ideas into successful businesses because of preventable financial confidence gaps is not a fully inclusive economy, nor one positioned for sustainable growth.
Several critical barriers affecting entrepreneurship are absent from the Strategy's analysis, yet our research and experience with 1.2 million UK small businesses reveal they are pervasive and economically significant:
1. The dichotomy between over- and under-confidence (detailed in question 1.1). Entrepreneurs often don't know what they don't know, taking unnecessary risks and missing opportunities. More than half (55%) avoid finances due to lack of enjoyment, anxiety, or being too busy. This is not a knowledge problem that education alone can solve; it requires ongoing support through trusted adviser relationships and digital tools that make financial management seamless.
2. Cultural stigma around asking for help creates a barrier to accessing the support that does exist. A fifth (20%) are too afraid to ask questions because they believe 'everyone knows this stuff'. Over a quarter (28%) believe they are simply 'not a numbers person'. These cultural factors mean that even when support is available, those who need it most may not seek it out.
3. The fragmented support ecosystem. Multiple community and business advice organisations — Citizens Advice, community hubs, MP surgeries, Business Growth Service, Help to Grow, entrepreneurship programmes — all provide valuable support but lack coordination and formal referral pathways. Accountants and bookkeepers, the most trusted source for 98% of small businesses, are not formally integrated into government support structures. This fragmentation creates inefficiency, duplication, and gaps where entrepreneurs fall through.
4. A digital skills gap compounds financial literacy challenges. Digital tools, including AI, can support small businesses with financial confidence gaps by simplifying and automating invoicing, sales tracking, payroll, and tax compliance. Our data shows that if small businesses with up to ten employees were digitalised at the pace of the top 20%, small business turnover would be £77.3 billion higher, creating 885,000 jobs. However, 55% of accountants and bookkeepers believe small businesses need stronger digital skills, whilst 75% of the smallest businesses see digital tools as 'not for them'.
5. Tax complexity amplifies all other barriers. Over recent years, the amount of fiddly tax law that applies to small businesses has grown dramatically. Large firms may have the resources to draw on specialist expertise, but small firms don't. Making Tax Digital for Income Tax, launching in April 2026, provides a clear case study: among sole traders and landlords with turnover over £50,000 — those who will be affected from the outset — as of July 2025, 26% have never heard of MTD for Income Tax. A further 24% have heard of it but know little about what it means for them, and half (49%) find the official information 'very confusing'.
6. The 'financial folklore' problem. Nearly half of accountants and bookkeepers (45%) blame 'pub conversations' for the spread of financial misinformation among small business owners. In the absence of formal education and clear official guidance, dangerous myths fill the vacuum. Half of accountants and bookkeepers (50%) have worked with businesses that wrongly assume that the government reimburses expenses. A third (33%) have met owners unaware that dividends are taxable. Nearly one in ten (9%) small businesses incorrectly believe they don't need to declare all income to tax authorities. This is not wilful evasion but genuine misunderstanding.
These barriers interact and compound each other. A young entrepreneur from an economically disadvantaged background may lack financial confidence, face stigma around asking for help, be unable to navigate the fragmented support ecosystem, perceive digital tools as 'not for them', struggle with tax complexity, and be vulnerable to financial misinformation. Addressing financial inclusion for this individual requires coordinated action across education, business support, digital adoption, tax simplification, and cultural change. The current Strategy, focused primarily on consumer financial inclusion, does not provide this coordinated approach for entrepreneurial financial inclusion. Supporting business creation and growth is central to inclusive economic participation, not peripheral to it.
The Financial Inclusion Strategy will have a limited impact on the growth mission without addressing entrepreneurial financial confidence. The missing growth multiplier is enterprise education and coordinated small business support.
Small improvements in financial capability compound at an enormous scale. A modest 1% productivity improvement across the SME base would contribute roughly £94 billion to annual GDP. Our research shows over half of small businesses (52%) would invest more time improving financial literacy if they believed it would improve efficiency and productivity. This represents enormous untapped potential for productivity gains across the economy.
Low financial confidence directly hinders the informed decision-making, healthy risk-taking, and access to capital that drive growth. Entrepreneurs who cannot clearly articulate their cash flow position, profit margins, or growth trajectory face higher borrowing costs or outright rejection from lenders, regardless of the underlying business quality.
Enterprise education would create an entrepreneurship pipeline with a significant economic impact. Louise Hill, CEO of GoHenry, the financial learning tool for young people, notes that 46% are more likely to start a business if they had financial education, which could create 125,000 new jobs and inject £7 billion into the UK economy.
International evidence demonstrates the growth impact of coordinated approaches to financial literacy. Finland has achieved the highest financial literacy globally through cross-government coordination, where the Bank of Finland drives national strategy, whilst Justice, Education, Economic Affairs, Finance, and Social Affairs all play coordinated roles. This joined-up approach, where regulation, incentives, advice, and skills development work in concert, delivers materially better outcomes than fragmented, siloed initiatives.
Without addressing entrepreneurial financial confidence through enterprise education, coordinated business support, adviser-led capability building, digital adoption support, and tax simplification, the Financial Inclusion Strategy will not unlock the full growth potential of the UK's 5.64 million small businesses. Ensuring they have the financial confidence to make informed decisions, invest for growth, and access capital should be a core pillar of any strategy claiming to support inclusive growth.
For underserved groups considering entrepreneurship, financial confidence barriers interact with other obstacles — lack of savings to cushion early trading periods, limited access to mentors who understand their circumstances, and a higher perceived risk of failure. Traditional financial advice channels often don't reach underserved groups due to lack of awareness, perceived costs, fragmented navigation, and cultural stigma. Addressing financial literacy and confidence is not merely about improving skills; it is about enabling social mobility and broadening who gets to participate in wealth creation.
That is why Xero is proud to have just launched our financial confidence programme for SMEs and aspiring small business owners to build their financial acumen and confidence — and more broadly help upskill the general population to understand their numbers. Online resources are supported by the Xero for Good Ambassador Programme, connecting small business owners with volunteer accountants and bookkeepers for up to a year of free mentoring on the basics of finance.
We are also supporting the Government-backed Maple Review alongside Small Business Britain, which exists to identify and dismantle the barriers to entrepreneurship caused by economic deprivation. The Committee should consider and hold the Government accountable to the recommendations coming out of this review.
We have convened an independent Financial Confidence Taskforce — a group of academics, accountants, bookkeepers, charities and education leads — whose recommendations will contribute to the review. These experts have found that to improve financial literacy and confidence, we need to deliver practical experience beyond the classroom. We need to ensure that people “Want It, Know It, and Do It”, and therefore propose the following recommendations for the Committee to consider:
1. ‘Want it’:
○ Make enterprise aspirational
○ Integrate enterprise education into the school curriculum
○ Promote role models that reflect the rewarding journey of entrepreneurship
2. ‘Know it’:
○ Give people the confidence to understand and “unlock” their numbers
○ Encourage employers to drive early-career financial training
○ Embed a business skills module into all apprenticeships
○ Leverage accountants and bookkeepers as financial business partners
3. ‘Do it’:
○ Turn confidence into capability through practice
○ Ensure real-world experience opportunities are offered in schools by both small and big businesses
○ Create a national badge that recognises practical business experience and present it as a career asset that’s valued by employers
January 2026