Small business sentiment at record low, poll reveals
Of those surveyed, 27 per cent of owners expect their businesses to either close, shrink or be sold in the coming year, according to the Federation of Small Businesses (FSB). Only 25 per cent believed their businesses would expand.
The sentiment is the worst since the closely watched annual survey began in 2008.
After suffering from tax rises since Labour swept to power, Tina McKenzie, the FSB policy chair, said small businesses were 'facing a very dangerous situation'.
'Confidence being so low, and not showing any improvement since the start of the year, is bad enough. Stagnation and pessimism among small businesses spells huge risk for the overall economy,' she said. For years political leaders have lauded small business as the 'backbone of the economy'.
Rachel Reeves, the chancellor, has insisted that the government is doing all it can to shield small firms from the fallout caused by her commitment to balance public finances. She said in December: 'I know it's tough and there are a lot of costs but we are trying to help.'
The FSB polling comes days after it emerged that the UK economy had unexpectedly contracted. Reeves admitted she was 'disappointed' by a 0.1 per cent contraction in May, announced by the Office for National Statistics (ONS) on Friday.
Small business owners said the state of the domestic economy was their biggest worry, followed by the tax burden and rising labour costs.
The results come just a week after it emerged that the hospitality industry had suffered the worst job losses since the Covid-19 pandemic, with 69,000 roles cut since October. There were warnings that 200,000 further jobs would be lost if Reeves's increase to the minimum wage and national insurance contributions are not reversed.
McKenzie said: 'The government has made all the right noises about supporting the small business community.' But she added that members' growth was being affected by late payments by larger businesses and the blanket imposition of personal guarantees on loans.
On Friday, the FSB issued a super-complaint to the Financial Conduct Authority to highlight the 'harsh lending practices' of banks that demand personal guarantees for business loans.
It said personal guarantees could be a 'straitjacket' on business growth, forcing entrepreneurs to put their homes or other assets on the line when taking out finance — even for small loans.
Many business owners are now more likely to abandon their business or growth plans or be pushed into being over-cautious, the FSB said.
A second survey last week found that more than half the leaders of small and medium-sized companies in the UK believe the economic climate is more volatile than during the pandemic.
The poll — by Dext, which makes bookkeeping automation tools — showed that more than a quarter of businesses had cut staff or frozen hiring and that early half had faced cashflow issues or turned to emergency funding.
More than half have also said planning was 'virtually impossible' in the current climate.
Among those forced to make redundancies is Tom Haward, who runs Richard Haward's Oysters, an eighth-generation family business. He let go one staff member and cut the hours of the remaining 18 employees. He said it was one of the hardest decisions he has had to make since succeeding his father, but had no choice because customer spend has declined 10 per cent in the past 12 months.
'It's so hard but I can't put prices up because then people spend even less so I have no choice but to cut costs where I can,' said Haward, 43.
Likewise, Dana Denis-Smith, the founder of Obelisk Support, which offers part-time lawyers to companies including Barclays Bank and BT, chose not to offer permanent contracts to the three staff whose 12-month contracts ended earlier this year. She said she knows a 'huge' number of people who have recently chosen to shut down their businesses due to the volatile economic climate.
'They'll say, 'I'm so stressed – what's the point?' The increased taxation burdens adds to a sense that entrepreneurs aren't welcome, said Denis-Smith, 49. 'There's no drive or energy in the economy.'
Mandira Sarkar, the founder of Mandira's Kitchen, a caterer and maker of upmarket Indian ready meals, is among those carefully considering her options. She is fearful of the impact of further potential tax rises in the autumn budget.
'For an economy to thrive, you've got to create conditions for businesses to function, not to stifle them. It's an absolute bloodbath out there and my family are looking at me saying, 'Why are you doing this? Let's just shut it.' Sarkar, 54, admits that, for the first time, it's tempting to close the business and try something new. 'It can't carry on like this,' she said.
A spokesman for the business department said: 'The last few years have been incredibly difficult for business. That's why this pro-business government is determined to improve the total business environment including for small businesses.'
Of the challenges faced by small companies seeking access to the capital needed to help them grow, he said the government is 'focused on working with banks to create opportunities for businesses to access the finance they need to scale, export and break into new markets.'
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