The majority of small businesses intend to expand over the next two or three years despite the current challenging economic conditions, according to the Department of Business, Enterprise and Regulatory Reform's (DBERR) annual small business survey for 2006-07.

The research revealed that 65% planned to grow, a 9% increase on the previous year. One in five small businesses had taken on more employees in the 12 months prior to the survey while one in seven had reduced the size of their workforce.

The survey also highlighted a 16% rise in the number of companies engaging employees in innovation of products and services (48% compared to 32% in 2005).

But the research also revealed a number of obstacles that could prevent such business growth, including competition (cited by 15% of respondents), regulation (14%), taxation including VAT, PAYE, NI and business rates (12%), the economy (10%) and a lack of cashflow (10%). These are broadly similar to the concerns of small business owners in 2005.

"The positive findings - of businesses intending to grow and introducing innovation - are indicators of a healthy enterprise environment, but the survey also highlights continuing challenges," said business minister Shriti Vadera.

"We recognise that regulation is a key business concern and this is why we are driving through one of the most ambitious programmes to ease the burden of regulation on business launched by any government."

The research also discovered that the vast majority of small businesses are run by men, with only 14% led by a woman or management team comprised mainly of women. Female-led businesses tended to be smaller than average.

"Getting more women into business is a challenge, not just for gender equality but for national economic success. We would have 700,000 more businesses if proportionally as many British women as American women started businesses," added Vadera.

"We will unveil an enterprise white paper next month to help unlock the talents of more people, make growing a business easier and narrow the productivity gap between Britain and the US."

Small business employers also appear more willing to fund staff training or development, with 60% having done so in the 12-month period before the survey was carried out. In 2005 that figure was just 41%.