AI adoption among small businesses could add £42 billion to the UK economy each year but widespread fear over the technology’s accuracy and risks are preventing this, according to Federation of Small Businesses (FSB).
New research by the membership organisation for small businesses found that 92 per cent of small firms are concerned about the risks inherent to AI, up from just 73 per cent in 2023.
Specific fears include AI hallucinations, to which 54 per cent of respondents pointed, along with security concerns, misuse of intellectual property, and lack of transparency about how models were trained.
Concerns have risen despite a rise in AI adoption and productivity gains associated with the technology. The FSB found that 55 per cent of small businesses now use AI, up from 20 per cent in 2023, with 59 per cent reporting it has improved their productivity.
Almost a quarter of respondents – 24 per cent – reported higher revenues after adopting AI, with 22 per cent also saying the technology helped them grow their business.
Tina McKenzie, policy chair at the FSB, said: “There is a healthy realism among small businesses when it comes to AI, and it’s encouraging to see so many already finding practical ways to use it to save time, improve productivity and grow.
“Business owners can see the potential, but they are also asking sensible questions about how their data is used, who is responsible when things go wrong, and how they can adopt the technology safely.”
McKenzie added that the potential benefits of AI adoption for small businesses are significant, with use cases including the development of new products and greater competition.
In response to the findings, the FSB has called for the government to make AI model information more readily available, protect businesses from having their copyrighted data used for AI training, clearly define who is culpable for AI mistakes, and give small businesses tax incentives for investing in AI.
The FSB’s figures for the overall economic benefits of AI adoption are based on a series of projections and assumptions about future AI usage.
Its report data showed an average revenue increase of three per cent post AI adoption, and the FSB applied this to a model in which the 45 per cent of small businesses not using the technology is halved and existing users increase their usage by 50 per cent.
It then applied these revenue increases to the Department for Business and Trade’s 2024 estimate that SMEs generate approximately £2.8 trillion in annual turnover.
In all, the FSB surveyed 904 small business owners from 11 to 24 November 2025 for its research.
A study by the Chartered Management Institute earlier in June found that UK businesses have yet to see transformational gains from AI adoption,
