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18 January 2016

FSB uncovers North-South divide in small business confidence

The latest Small Business Index (SBI) from the Federation of Small Businesses (FSB) for Q4 2015 shows a growing gap in confidence between businesses in Scotland, North East England and Wales and those in the Midlands and the South of England. While there is good news for the UK as a whole in terms of job creation, increasing revenues and improving productivity, firms in the North East of England, Scotland and Wales risk being left behind.

In the last 12 months, smaller firms in the North East, Yorkshire, Scotland and Wales have all shown a year-on-year decline in confidence. In Wales, confidence has dropped into negative territory for the first time in two years. In Scotland, confidence levels are at their lowest levels since the start of 2013. Elsewhere confidence levels have remained stable, supported in particular by firms in technology and business/professional services.

John Allan, FSB National Chairman, said:

“A clear divide in confidence is now emerging across different parts of the UK, with businesses in the South and in sectors like technology and professional services feeling more positive about 2016. The recent flooding is likely to further weigh on business confidence in the North where small firms are now beginning to pick up the pieces as the waters recede.

“FSB members across the country tell us they are concerned about a number of business challenges coming down the line in 2016. This includes the rollout of pensions auto-enrolment, the new National Living Wage, and changes to taxes on dividends. Members are also deeply worried about proposed mandatory quarterly tax reporting, which in its current form will add to the administrative burden of small firms and the self-employed.

“Ministers need to be sensitive to the cumulative impact of challenges that small businesses now face, which may already be reducing investment intentions. Flooding assistance should be easy to access with a promise of affordable flood insurance for small businesses. Digital quarterly tax reporting must be voluntary, piloted and brought in after a proper consultation and impact assessment. Our Index underlines the need for a simpler tax system. Nearly one in four small firms (22%) report tax burdens as the biggest barrier to growing their business, up from one in six (16%) just 12 months ago.”

Overall confidence across the UK remains in positive territory standing at 21.7 points which is 4.1 points higher than Q4 2014. Nearly two thirds (59%) of businesses anticipate growth relatively unchanged from the last quarter, with almost one in four firms (24%) reporting a growth in revenue in the last three months, the highest since 2010.

Smaller businesses are still leading the way on job creation with firms reporting that they have expanded their staff in the last three months, with more planning to do so this Spring. 

Results also show smaller firms are making greater productivity gains and producing more for less. The SBI shows productivity has reached an all time high of three per cent which has doubled in the last 12 months.

The amount of spare capacity is at its lowest level reported, giving further credence to expectations of an interest rate rise later this year.

John Allan continued: “Although confidence is patchy across the UK, small businesses continue to show they are resilient, leading the way on employment growth and productivity.

“Increased productivity and stable economic growth are helped by a low inflation environment. This increase is the sixth consecutive quarter of rising productivity. It is clear that small firms are improving their use of capital equipment, providing better staff training and finding new ways to be more efficient.”

Further key findings for Q4 2015:

  • The SBI, measuring small business confidence for Q4 2015 stands at 21.7 which is 4.1 points higher than Q4 2014.
  • More than half (57%) of businesses had a loan approved this quarter, compared to 45 per cent in 2012. But, fewer firms (13%) are approaching their banks.
  • A balance of 6.7 per cent of smaller firms report they have expanded staffing levels. A balance of 7.3 per cent plan to hire over the next three months.
  • For those businesses who export, almost half (47%) report that the main barrier to increasing their trade is fluctuating exchange rates.
  • Compared with a year ago, salaries among small businesses have increased by 2.3 per cent. In the construction sector where skills shortages are particularly prominent, salary increases stand at three per cent. Small firms plan to increase wages by 2.7 per cent in the year ahead.
  • The business services industry, which includes the professional services sector are reporting the highest level of confidence with an Index reading of +40, up from +31 12 months ago. The technology sector has also seen rapid growth in the past 12 months among small firms.
  • Investment intentions have fallen with a balance of 22 per cent of small firms anticipating capital investment compared with a balance of 25 per cent across 2014 as a whole. However, bucking the trend are businesses in the manufacturing sector, whose plans to invest remain at a higher level than other businesses (28%).
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