Staff shortages major concern to small-business growth plans

In its Q4 summary, the FSB found that despite recessionary pressures, the labour market remains tight and firms are still facing difficulties in filling vacancies amid labour shortages.

The index also found that 16 per cent of small businesses decreased staff levels in Q4 and only 10 per cent increased staff levels marking the worst reading on this measure since Q4 2020 when the UK economy was facing the second national lockdown.

“The latest headline Small Business Index confidence reading does not tell a happy story about the state of the UK’s 5.5 million-strong community of small businesses and self-employed people,” said FSB national chair Martin McTague.

“Appropriately enough for the winter edition of our quarterly temperature check of small businesses, the -46 points measured is well into deep freeze territory, having fallen steadily from the relatively sunny outlook which small firms reported in the first quarter of 2022, the last time it was in positive territory.”

The last quarter of 2022 saw the third consecutive quarterly rise in the share of small businesses applying for credit. At 13.8 per cent, this share rose to its highest level since Q1 2021.

However, 51 per cent of small businesses rated the overall availability and access to credit as poor.

The report also showed 44 per cent expect revenue to decrease while only 29 per cent expect to increase over the next quarter.

“Weakening growth aspirations align with the general pessimism witnessed across the economy,” Mr McTague said.

“Given the anticipated headwinds at the aggregate level, the ability of small businesses to grow is set to be tested over the coming year.”

Utilities represented the most commonly cited cause of changing costs among businesses in Q4, being the case for 61.3 per cent of survey respondents.

The domestic economy was the most commonly cited potential barrier to growth among businesses that expect to expand over the coming year (63.7 per cent).

The net balance of small businesses reporting an increase in operating costs stood at 86.1 per cent.

“There’s no denying the scale of the challenge that small firms are facing — the findings of this report speak for themselves in that regard,” Mr McTague said.

“With persistently high energy prices (and with the end of the Energy Bill Relief Scheme looming at the end of March, to be replaced by the far less generous Energy Bill Discount Scheme), trouble finding staff with the right skills, and higher costs for just about every input you care to mention, small businesses are up against it to a degree not seen since the height of the pandemic.

“Small businesses are resilient and astute, and skilled at adapting their operations to fit prevailing conditions with an eye to the future. But there is a limit to what they can cope with.

“They are looking now to the Budget in March, where the Government has an opportunity to set out an agenda for growth. We have come up with proposals to help small firms on issues ranging from late payment, to helping economically inactive people back into work, to promoting small businesses’ investment in R&D and their ability to reduce emissions, as well as mitigating the impact of the pre-profit taxes which deter risk-taking and entrepreneurship.

“With a less than encouraging sounding of small business sentiment in the final quarter, we are calling on the Government to take action and turn the economic forecast from wintry chill to something with more of a hint of spring to it.”