For first time ever, more small firms expect to shrink than grow
More small business owners expect their firm will shrink, shut or be bought over next year than predict a year of growth – for the first time in at least 15 years.
According to a poll by the Federation of Small Businesses (FSB), 27 per cent of bosses believe their company will downsize, be sold or shuttered entirely in the next 12 months, compared with just 25 per cent who believe their firm will expand.
The finding – from the industry body’s quarterly sentiment survey – is the first time pessimism outweighed optimism among business owners since the study started in 2010.
Overall, the FSB’s headline confidence measure dropped to -44 points in the second quarter of this year, from -41 points in the first quarter – as firms adjusted to the twin hikes to employers’ national insurance contributions and minimum wage.
The pessimism was reflected in bosses’ revenue forecasts. Over two in five said they expected earnings to decrease over the next three months, while only a quarter anticipated their revenues would rise.
Tina McKenzie, the FSB’s policy chair, said the findings presented “a huge risk to the UK economy” and piled further pressure on the government’s upcoming Small Business Strategy.
“The government has made all the right noises about supporting the small business community,” she added. “Now is the time for ministers to make good on their promises, and to use the Small Business Strategy to tackle issues like late payments by big businesses to their smaller suppliers, and the blanket imposition of personal guarantees on small business loans, both of which are enormous brakes on growth among small firms.”
Employment Rights Bill weighing on small business confidence
Small business owners overwhelmingly cited the UK’s doggedly stagnant economy as being the main obstacle impeding their growth, with 64 per cent selecting it as a top three concern.
The record-high tax burden was firms’ second biggest concern, with 39 per cent choosing it, while higher labour costs were selected by 37 per cent of respondents.
McKenzie also highlighted the spectre of further employment costs on the horizon in the shape of the Employment Rights Bill, which she branded “a massive dampener on small firms’ appetite to take on staff”.
Small businesses have been especially vocal critics of some of the more far-reaching measures within the package, currently being scrutinised by the House of Lords.
Of particular concern to bosses are the bolstered rights it would hand workers from day one of employment, including protection from unfair dismissal, about which the FSB has previously said its members are “really worried”.
Small firms have also sounded the alarm on its plans to make employers on the hook for paying statutory sick pay from day one of a staff member’s illness. Over 100 bosses recently warned the sick pay changes pose a major threat to profitability in their narrow-margin sector.
McKenzie added: “With no significant changes as yet to the proposals, especially to the policy of expanding day one unfair dismissal rights, the Bill will act as a thumb on the scales against taking on a new employee, maybe someone who is further from the employment market.”