Seven in ten small firms hold back investment due to political uncertainty

Small firms are struggling to expand, hire and raise productivity as political uncertainty leaves them increasingly hamstrung, according the full SBI Q2 2019 report from the Federation of Small Businesses (FSB) released on Tuesday.

According to FSB’s finding, 72 per cent of small firms are not planning to increase capital investment in their business over the coming quarter. The figure is at its highest since Q2 2017.

“It’s impossible for small business owners to invest for the future when we don’t know what the future holds,” said FSB National Chairman Mike Cherry.

Mr Cherry urged both prime ministerial candidates to spell out their plans for supporting small firms and securing a pro-business Brexit, one that encompasses a comprehensive deal and a substantial transition period.

“Lifting productivity among the smaller firms that make-up 99 per cent of our business community is a must. But until we have the political certainty that enables us to take risks and innovate, achieving that goal will remain elusive,” said Mr Cherry.

Elsewhere, more than a third or 35 per cent of small firms say accessing appropriately skilled staff is now a major barrier to growth – the biggest proportion since Q3 2015.

The net balance of small businesses that are increasing headcounts – the proportion of those hiring new staff less the proportion reducing their team size – stands at a three-year low -2 per cent, FSB disclosed.

Mr Cherry explained that a tight labour market and the recent drop in migration are making matters worse for small business.

“It’s becoming harder and harder to find the right people to fill vacancies,” he said.

Moreover, FSB revealed that the quarterly UK SBI confidence measure dropped 22 points compared to the same period last year to -8.8 in Q2 2019, marking a fourth consecutive negative reading. Such a sustained slump is a first for the index, which launched in 2010.   

The latest SBI also finds that only one in seven (14 per cent) small firms are applying for new credit. The figure is largely unchanged over the past two years, and is down two percentage points compared to Q2 2016.

More than four in ten (43 per cent) small firms describe new credit as “unaffordable” – the highest proportion since Q1 2015.

“Against this backdrop, it’s more critical than ever that the British Business Bank is properly equipped to build on its vital work in providing start-up loans and enabling equity investment in small firms.

“A sudden withdrawal of European Investment Fund support for small businesses without a suitable domestic replacement would be catastrophic,” Mr Cherry concluded.