Confidence among small businesses has plunged to a level almost on part with the second Covid lockdown in 2020 a new survey has found, amid falling consumer spending, inflation, and high energy bills. According to the Q4 2022 Small Business Index from the Federation of Small Businesses (FSB), confidence among small firms across several industry sectors was particularly low.
The survey recorded a headline confidence figure in Q4 2022 fell to -46 points, down from -36 points in Q3 2022 - and the lowest result since the final quarter of 2020 when it was -49 points.
Confidence was particularly low among retail businesses who recorded a finding of -83 points with hospitality firms coming in at -71 points. The survey, which was conducted in December, revealed a troubling result for consumer-facing businesses such as shops, bars and restaurants during the traditional 'golden quarter' of trading.
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However, the construction (-19 points), IT and technology (-25 points) and manufacturing (-39 points) sectors were more upbeat than average, despite also being in negative territory.
In terms of revenue, an increasing number of small firms reported a drop in revenue over the last three months (43%) than reported a rise (33%). Outlook for the next three months reflected this as well, with 44% expecting to see a fall in revenues against three in ten anticipating a rise (29%).
The proportion of small businesses which saw employee numbers fall (16%) outweighed the share which gained staff (10%) over the previous three months. However, the employment outlook for the next three months was more positive, with one-in-seven small businesses (14%) expecting to increase their staff numbers against around one in ten (11%) expecting to see a fall.
Inflation also continued to take a toll on small businesses, with nearly two in five saying costs were significantly higher (38%) than in the same period a year earlier. Utility bills, including energy, were cited by over three-in-five small firms as a driver of their change in costs (61%).
The survey also found that late payments are still holding back a significant number of small firms. Three in ten small businesses (30%) said their payment situation had worsened over the previous three months.
In response to the results, the FSB has drawn up a growth plan for the UK Government to implement which includes:
- Tackling late payment once and for all, by making the audit committees of large corporates responsible and accountable for supply chain payment practices, with a legal requirement that payment times and conditions be published in annual reports.
- Addressing recruitment troubles by taking action to help people access affordable childcare, creating a ‘Kickstart’-style scheme to help more people kept out of work through health problems to access work, and bringing in skills bootcamps for the over-50s.
- Introducing a Help to Green voucher with a suggested value of £5,000, to be used by small firms to invest in green improvements to their premises, such as a heat pump, better insulation, or solar panels. This will stimulate the economy, cut emissions, and reduce small firms’ energy bills at the same time.
- Promoting small businesses’ investment in R&D by reversing the cut to R&D tax credits brought in at the Autumn Statement, and reduce the complexity within the application process so small firms can navigate it without the need to hand over a large cut of any relief they gain to intermediaries.
- Reforming the way taxes are levied to help boost small firms - increasing Small Business Rate Relief to £25,000 in England and raising the VAT threshold from £85,000 to £100,000 to help the self-employed work more hours.
FSB National Chair, Martin McTague, said: “There’s no way to sugar-coat these figures – small businesses’ confidence is at its third-lowest level since we started tracking it nearly a decade ago. But business owners are resilient and where there is a will, we will find a way through.
“Clearly, falling consumer spending, inflation, and high energy bills are all taking a toll, and poor results after the golden quarter are particularly disappointing – but this should also be a time to grasp the nettle and be decisive in finding more ways for the economy to grow, which is why we have drawn up a plan of action for the Government to implement.
“Small businesses are always the engine room of any economic recovery. The more rapidly small firms pull through, the more rapidly we can all recover.
“Helping more people into work, tackling late payment, driving energy efficiency, powering R&D and getting more people to start up on their own are all initiatives that will make a real difference to the economy – just as small business owners individually will continue to demonstrate the ingenuity they showed during the pandemic to find new markets and new ways of working.
“Small firms are a fantastic national resource of innovation and creativity – especially if given the right conditions to flourish. These results are incredibly worrying, yes, but they are not the final word.”
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