Small-business confidence hits record lows

The results of the Federation of Small Businesses’ Small Business Index latest quarterly confidence index found that one in seven small firms plan to shrink, sell or shut.

And the FSB said whoever wins the UK leadership race needs to win back the confidence of the sector before it’s too late.

The latest figures showed that for small firms operating costs hit a record high last quarter with fuel, utilities and tax squeezing margins and investment intentions plummeting to lowest point outside Q1 2020.

As well, exporters continue to struggle and competition for talent increasingly absorbs resources.

The UK headline small-business confidence measure has tumbled to -24.7, down more than 40 points on the same quarter last year (+18.6).

The figure is the lowest recorded outside of periods when significant trading restrictions aimed at halting the spread of COVID were in place. It stands on a par with that posted in Q3 2020 (-32.6) and is lower than the level seen in the final quarter of last year when the omicron variant was rapidly spreading (-8.5).     

Among the more than 1,300 firms surveyed for the study, the vast majority (77 per cent) do not expect their performance to improve over the coming quarter. More than a third (38 per cent) expect it to worsen. Fewer than one in 10 (8 per cent) expect to grow rapidly.  

A record high 89 per cent of small firms said operating costs are up this year compared to last, with record-high numbers citing fuel (64 per cent), utilities (64 per cent) and inputs (48 per cent) as primary drivers of that increase. Four in 10 (43 per cent) flagged labour as a main contributor to higher outgoings, with substantial proportions also highlighting taxation (23 per cent) and regulation (15 per cent).    

A third (34 per cent) of firms cited lack of appropriately skilled staff as a barrier to growth, with two-thirds (64 per cent) planning to increase wages over the next year as the labour market remains tight. A quarter (27 per cent) plan to increase pay by 6 per cent or more.  

At the same time, investment intentions have hit the lowest point recorded outside of the first lockdown in Q1 2020 – fewer than a quarter (23 per cent) said they’ll up capital investment over the next quarter compared to last.  

Exports are also in the doldrums: the share of firms that do business overseas reporting a decrease in export value (36 per cent) significantly outstrips the number reporting an increase (28 per cent). Those proportions last stood in reverse in Q1 2019.  

Amid myriad challenges, one in seven (15 per cent) of respondents said they plan to consolidate, close or sell their firms over the coming year.

FSB national chair Martin McTague said the cost-of-doing business crisis has worsened to the point where confidence is now lower than during last year’s massively disrupted festive trading season.  

“Firms are trying to absorb additional cost pressures but can only do so much before they’re forced to raise prices,” he said.

“The small business community reduced in size to the tune of hundreds of thousands over lockdowns. Unless policymakers act fast, history is set to repeat itself.

“Firms desperately need help with the charges that hit them regardless of profitability: business rates, national insurance, utilities, fuel and those linked to supply chain disruption.  

“We’re looking to prime ministerial candidates for unequivocally pro-business, pro-growth commitments. There is still time to act, but time is of the essence.”