Why small businesses are feeling glum

Confidence, profits and exports are all on the slide.

by Jack Torrance
Last Updated: 24 Mar 2016

It looks like George Osborne’s tax bung for small businesses in the Budget this week couldn’t have come at a better time. The nation’s entrepreneurs are having a pretty tough time of things at the moment, according to the latest report from the Federation of Small Businesses.

It found that confidence in the nation’s small firms had dropped to its lowest level since the first quarter of 2013 – way back when we were finally beginning to see the ‘green shoots’ of economic recovery. Revenue growth and gross profit have both slumped over the last three months and small business export performance is at its worst level since the FSB started measuring it (although that was just four years ago). More small companies said they had cut their staff headcount over the three months than increased it.

The report says this is partly the fault of government policy. The new £7.20 national living wage, which comes into effect next month, will weigh heavily on small business payrolls. As will workplace pensions auto enrolment, which is gradually being expanded to cover the nation’s smallest businesses. New rules forcing businesses to report their tax liabilities every quarter won't help either.

And the economic environment is surely playing a part too. While few small businesses trade directly with China or Russia, their economic problems have sent chill winds across the world – causing Britain to revise down its own expected growth figures too. The prospect of further turmoil in the Eurozone does not bode well for exporters.

The fall in confidence could also reflect some trepidation about the upcoming EU referendum. Small businesses appear more divided on the issue than their mainly anti-Brexit corporate counterparts (the FSB is remaining neutral on the matter). But even those who want to break free from what they see as a regulatory straightjacket must surely recognise the grander economic blowback that could lead to.

A cut in business rates will certainly provide some welcome relief but with many of the economic indicators looking shaky it could be some time before small business owners are feeling jovial again.

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