Small-business confidence collapses — FSB calls for growth plan to power through

The Q4 2022 FSB Small Business Index found that small firms’ confidence has fallen again, plunging to a level almost on a par with the second COVID-19 lockdown, but the Federation said its members are resilient and will continue to fight.

The FSB has released a series of measures that it believes will help save the sector from collapsing and is urging the government to back its calls.

FSB national chair Martin McTague said the poor economic climate should focus minds on breaking down barriers to growth — helping more people into work, tackling late payment, driving energy efficiency, and powering R&D.

“There’s no way to sugar-coat these figures — small businesses’ confidence is at its third-lowest level since we started tracking it nearly a decade ago. But business owners are resilient and where there is a will, we will find a way through,” he said.

“Clearly, falling consumer spending, inflation, and high energy bills are all taking a toll, and poor results after the golden quarter are particularly disappointing — but this should also be a time to grasp the nettle and be decisive in finding more ways for the economy to grow, which is why we have drawn up a plan of action for the Government to implement.

“Small businesses are always the engine room of any economic recovery. The more rapidly small firms pull through, the more rapidly we can all recover.

“Helping more people into work, tackling late payment, driving energy efficiency, powering R&D and getting more people to start up on their own are all initiatives that will make a real difference to the economy — just as small business owners individually will continue to demonstrate the ingenuity they showed during the pandemic to find new markets and new ways of working.

“Small firms are a fantastic national resource of innovation and creativity — especially if given the right conditions to flourish. These results are incredibly worrying, yes, but they are not the final word.”

The latest FSB report found that sectors like retail and hospitality are under particular pressure and more businesses are losing staff than gaining though future hiring intentions are more positive.

More positively, the construction (-19 points), IT and technology (-25 points), and manufacturing (-39 points) sectors were more upbeat than average albeit still in negative territory.

More small firms reported a drop in revenues over the previous three months (43 per cent) than reported a rise (33 per cent) and their outlook for the next three months reflected this as well, with 44 per cent expecting to see a fall in revenues against three in 10 anticipating a rise (29 per cent).

The proportion of small businesses that saw employee numbers fall (16 per cent) outweighed the share that gained staff (10 per cent) over the previous three months although the employment outlook for the next three months was more positive with one in seven small businesses (14 per cent) expecting to increase their staff numbers against around one in 10 (11 per cent) expecting to see a fall.

Inflation continued to take a toll on small businesses, with nearly two in five saying costs were significantly higher (38 per cent) than in the same period a year prior. Utility bills, including energy, were cited by over three in five small firms as a driver of their change in costs (61 per cent).

Late payments are still holding back a significant number of small firms, with three in 10 small businesses (30 per cent) saying their payment situation had worsened over the previous three months.

FSB’s plan to help small businesses includes:

• Tackling late payment once and for all by making the audit committees of large corporates responsible and accountable for supply chain payment practices with a legal requirement that payment times and conditions be published in annual reports
• Addressing recruitment troubles by taking action to help people access affordable childcare, creating a ‘Kickstart’-style scheme to help more people kept out of work through health problems to access work and bringing in skills boot camps for the over-50s
• Introducing a Help to Green voucher with a suggested value of £5,000 to be used by small firms to invest in green improvements to their premises, such as a heat pump, better insulation, or solar panels. This will stimulate the economy, cut emissions, and reduce small firms’ energy bills at the same time
• Promoting small businesses’ investment in R&D by reversing the cut to R&D tax credits brought in at the autumn statement and reduce the complexity within the application process so small firms can navigate it without the need to hand over a large cut of any relief they gain to intermediaries
• Reforming the way taxes are levied to help boost small firms — increasing Small Business Rate Relief to £25,000 in England and raising the VAT threshold from £85,000 to £100,000 to help the self-employed work more hours