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04 July 2016

FSB reports sharp drop in small business confidence

The Federation of Small Businesses (FSB) has found small business confidence at a four year low following the largest annual drop in the FSB Small Business Index (SBI) since it started in 2010.

The latest SBI, gathered before the EU referendum, found smaller firms planning to cut jobs for a second consecutive quarter. FSB members reported falling profits with increases to the cost of labour and the overall tax burden listed as major contributors to a rise in the cost of doing business.

The index also saw a sharp fall in investment intentions with just 12.2% of small firms planning new capital investment in the next 12 months - less than half of the 31.9% planning the same a year ago. This came despite improvements to both the availability and affordability of credit.

With the EU referendum result bringing political uncertainty, economic volatility and predictions of an economic slowdown in the UK and our main EU trading partners – FSB is calling on policy makers to take rapid steps to ease the cost of doing business and shore up small business confidence.

Mike Cherry, FSB National Chairman said: “Even before the EU referendum result, our members were reporting tough business conditions right across the country. While the referendum result has settled the question of UK membership of the EU – there are many questions left unanswered. While these remain – we must take steps to shore up the economy and support UK small businesses.

“We need Ministers to take stock and roll back any plans which will make doing business more difficult or costly. This should include ending moves to introduce disruptive digital tax reporting and honouring commitments to expand small business rate relief. The Low Pay Commission should be especially vigilant when recommending next year’s National Living Wage rate - taking extra care to ensure small businesses can sustainably support higher wages at this challenging time.

“For the first time since 2009, the UK economy faces a real chance of a recession. To head this off, we need to do everything we can to support small firms to grow, create jobs, and weather the harsh economic headwinds.”

The extent to which uncertainty caused by the upcoming referendum affected confidence is unclear, with other factors also likely to have weighed on small business confidence. Our data does, however, suggest that uncertainty about the outcome of the referendum is likely to have had an impact on confidence, with investment decisions also being deferred.

The sharpest fall in confidence was in London – which dropped into negative territory for the first time since 2012. The capital joins Scotland which also showed negative numbers in the FSB small business confidence index. For Scotland this is the second consecutive quarter with a net negative confidence score – likely due in-part to the decline in the North sea oil and gas industry.

The most optimistic regions were the North East and Yorkshire and Humberside - although these areas also saw a drop in overall confidence, reflected right across the UK.

The next FSB Small Business Index for the third quarter of 2016 will be published on 19 September 2016.

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