The Q3 Small Business Index saw a fall in small firms’ confidence levels in Q3 with utility bills and fuel prices top of the list in their concerns of rising cost pressures.
The quarterly survey found the greatest level of pessimism among small-business owners outside of lockdowns, with a net confidence score of -35.9 in Q3 2022, down 11.2 points compared to the previous quarter.
Almost half (43 per cent) reported falling revenues over the three months to October, compared to less than a third (32 per cent) reporting an increase. Over the coming three months, four in 10 (41 per cent) expect revenues to decrease.
Rising costs continued to affect the vast majority of small firms (89 per cent), with nearly two in five (38 per cent) seeing costs increase by more than 10 per cent.
The primary cost factors are utilities (60 per cent of respondents), fuel (57 per cent), inputs (48 per cent), and labour (43 per cent).
More than two-thirds (68 per cent) of small-business employers have increased wages over the last year, with the average wage increase of 4.5 per cent.
For the third consecutive quarter, there has been a rise in the number applying for finance (13 per cent in Q3, compared to 9 per cent in Q1). Of those, nearly half (46 per cent) have turned to finance to help manage cash flow, up from 35 per cent in Q2. Only a quarter (25 per cent) applied for finance to expand their business, down from 29 per cent the previous quarter.
One in five (20 per cent) finance applicants failed to find an offer with an interest rate below 11 per cent, while the majority of successful applicants (57 per cent) were offered rates between 5 and 10 per cent.
FSB is also urging ministers to tackle a systemic problem in the economy on late payments, which would not require expenditure at a time of focus on public finances.
More than half (54 per cent) of small businesses had their cash flow woes in Q3 compounded by the late payment of invoices, often by bigger business customers. More than a quarter (27 per cent) said late payments are becoming an increasing problem, up from 22 per cent in Q2.
Business-to-business (B2B) firms were the biggest victims, with the worst affected including those in the manufacturing sector (67 per cent); professional, scientific and technical activities (65 per cent); and construction (64 per cent).
FSB national chair Martin McTague said the anti-growth late-payment culture is a block on investment and economic recovery.
“If the UK Government is serious about going for growth, addressing this pernicious problem should be high on the urgent to-do list,” he said.
“Audit committees of big corporates must be made accountable for payment practices. Meanwhile, ministers must double-down on blacklisting big businesses which treat their smaller suppliers and contractors badly from landing lucrative taxpayer-funded contracts. This is a way of promoting growth without a price tag for the Exchequer.
“Giving more public sector contracts to smaller businesses should also be prioritised, at a time when there is an acute need to get value-for-money for taxpayers. Widening competition in public procurement by making more contracts suitable for small firms would save taxpayers’ money while driving up standards. It’s a no-brainer.”
Mr McTague said small-business entrepreneurs are, by their nature, an optimistic, dynamic and innovative bunch, which is why it is all the starker to see this plunge in confidence.
“They want to be driving growth and economic recovery, but the headwinds against them right now are gale-force,” he said.
“Recent political and economic turmoil hasn’t helped, which is why it is vital the Government focuses on stability, including delivering on its promises to help with energy bills for small firms and to reverse the hike in National Insurance. That money must be in the pockets of small firms by next month, no ifs, no buts, followed by clarity on what will happen after the initial six-month period.
“While the new Chancellor has focused in his first days on reassuring markets to bring economic stability, he will need to turn again later to pro-growth measures, including revisiting issues such as IR35 changes and the decision to raise the equivalent of National Insurance for hard-working entrepreneurs who are paid via dividends. Raising taxes now will not generate growth, and we risk seeing high taxes with low or no growth for the foreseeable future.
“Taking more small firms out of business rates, which they’re clobbered with before they’ve earned a penny, would be a positive, pro-growth step. In time, there should also be a review of the level at which the higher rate of Corporation Tax kicks in, reducing a barrier for ambitious smaller companies.
“The Government’s own new annual figures show that two years of Covid has left the small business population smaller by half a million small firms and the self-employed. This gap of missing entrepreneurs, alongside those that have left the jobs market, should be the focus of medium-term growth measures, to help small businesses start up, grow, and recruit, after getting through the toughest of winters.”
