Small business confidence has increased from an historic low but cost pressures as a result of several new regulations introduced this month could drag it straight back down, the Federation of Small Businesses (FSB) has warned.
The FSB warned that the April costs crunch is hitting due to several changes including increases to the National Living Wage, expanding statutory sick pay rules, the introduction of Making Tax Digital for Income Tax and a rise in dividend tax.
A total of 87% of firms are seeing their costs rise compared to the same period last year, FSB said, with 26% reporting double digit rises.
Taxation was the top driver of cost increases for the fourth quarter running (58%), while labour (56%) and utilities (53%) are a close second and third.
At the same time, more small firms are seeing their incomes fall than rise, with over half reporting a drop in revenues over the last three months, compared to a quarter seeing an increase. Meanwhile, 45% expect a fall in the months ahead.
As a result, more small firms are planning to cut staff (21%) than hire (8%). Over the past three months, 23 per cent of firms reduced staff, with 8% increasing headcount.
Late payments remain widespread, the study found, with 69% affected. At the King’s Speech on 13 May, the FSB said the government must ensure the recently announced late payment legislation, including giving the Small Business Commissioner the power to fine big businesses that persistently pay late, is included.
FSB is also calling on the government to:
- Reduce business rates by using in full the powers it has taken to lower costs within the retail, hospitality and leisure sectors
- Mirror for small businesses the help that consumers have already received, by removing renewable obligation costs from bills, therefore offsetting energy standing charge hikes
- Introduce a statutory sick pay small employer rebate
- Pledge to hold dividend taxes from further rises for the rest of this Parliament.
Tina McKenzie, FSB policy chair, said:
“Sentiment among the community remains low, driven by mounting costs stemming from policy decisions made by ministers. The outlook for small business growth is bleak, and you can’t get growth in the economy relying just on the UK’s large corporate firms who are feeling relieved after the last Budget.
“Small businesses need a cushion to absorb the costs kicking in over the course of the year, because without changes to business rates, help with energy costs, an SSP rebate and a delay in dividend tax increases, it leaves them in a very vulnerable place. If the Middle East crisis continues to escalate then the government must keep an open mind about creating targeted business support for those most in need.
“The numbers tell a brutal story, and behind every one of these numbers are business owners who went to bed last night wondering if and how they can make it work. We should be encouraging more people to take the leap and start their own business, while existing businesses want to hire, invest and grow. But they can’t do any of that when they’re busy worrying about bills.
“The next King’s Speech must deliver on the promise to stop large firms paying small businesses late. The UK is unique in being a place where late payment has been considered as acceptable, and the toughest legislation in the G7 cannot come soon enough.
“The government must tackle rising costs head on and give firms the support they need to take on staff and plan with confidence. Without that, these early signs of recovery risk slipping away before they’ve had a chance to take hold.”