NEWS: Fall in Small Business Confidence as Employment Costs Take Toll

Small business confidence fell back into negative territory in the second quarter of this year, losing the ground made up by the first quarter’s welcome return to positive sentiment among small firms

FSB’s Small Business Index (SBI) for Q2 2024 saw the headline confidence reading tumble to -10.8 points, a fall of 16.3 points from Q1’s +5.5 points.

Reported revenues over the second quarter were more or less in line with the previous three months, with just under a third of small firms reporting that their revenues increased in Q2, and two in five noting a fall. These findings are lower than small firms had anticipated in Q1, when nearly half of small firms (45.7%) predicted that their Q2 revenues would rise.

Small firms once again pointed to the domestic economy as the most commonly cited barrier to growth, picked by three in five small businesses. Consumer demand was selected as a barrier to growth by a similar percentage in Q2 (34.6%) as in Q1 (35.6%), although labour costs and the tax burden edged upwards as concerns.

In terms of the factors driving costs, labour costs are the most commonly cited, at 52.2%, the highest-ever reading on this measure, leapfrogging ahead of utilities which were the leading cost factor in Q1.

Tina McKenzie, FSB’s Policy Chair, said:

“After a strong start to 2024, we were all hoping that the latest quarter would be just as positive for small businesses – if not more so. But sadly it was not to be.

“Small businesses are looking with trepidation at the Government’s forthcoming plans to change employment, which could both increase risk around small businesses employing people, and the costs when they do. The rise of labour costs will hold back economic growth, and points to the possibility of a contraction in small business job numbers, which would be terrible news for firms, for staff, for local communities, and the national economy.

“Taxes and employment costs are already soaring for small employers. The Government should formally index the Employment Allowance to the rising living wage to help alleviate pressure on small firms and resolve the economic inactivity crisis. Every line in the Government’s employment plans must be checked for negative impact on growth and jobs.

“The construction sector’s woes, with the lowest confidence reading among the major sectors, underpins our calls for more support for small housebuilders, such as reforming the consumer infrastructure levy, so small building firms can access the finance they need. The Government’s 1.5 million homes target cannot be achieved without new policies to unlock the potential of small housebuilders.

“With reported revenues in the second quarter not matching the predictions small firms made at the start of the year, there are signs that the small business community found the going tough.

“We’re still waiting for action from the Government on the long-running sore point for small firms of late payment. This could be tackled by giving audit committees of large firms oversight of payment practices in their annual reports – something that would not cost the Government a penny, but which could help millions of small businesses’ cash flow improve significantly.

“Overall, the small business community is looking for reassurance from the Government that it is listening to their concerns, especially around tax and employment.

“The fall in confidence among small firms is disheartening, but need not become a self-fulfilling prophecy. With the right support, we know that small businesses can thrive and drive the economic growth that the Government has said is its priority.

“Now, as we head into the next quarter, we’re staring down the barrel at some tough challenges if we want to rebuild confidence.

“The riots have left small businesses picking up the pieces, so to turn this around, the Home Secretary needs to facilitate fair treatment of SMEs by the insurance industry. Additionally, the Government and police commissioners need to work together to clearly explain how small businesses can claim lost earnings under the Riot Compensation Act.”