At least 250,000 UK small businesses set to fold without further help, new study warns

Press Releases 11 Jan 2021

FSB publishes the findings from its latest Small Business Index study.

  • Quarterly Federation of Small Businesses (FSB) Small Business Index (SBI) shows confidence at second lowest ebb in report’s ten-year history.  
  • One in five firms reduced headcounts in three months to December; one in seven expect to do so this quarter.
  • Share expecting profits to fall over next three months hits all-time high, with exporters feeling the strain as new EU-UK trade deal beds in.  

A record number of small business owners are planning to close their firms over the coming twelve months, putting the UK on course to lose more than a quarter of a million businesses, according to the latest SBI.

Just under 5% of the 1,400 firms surveyed for the study say they expect to close this year. The figure does not reflect the threat of closure faced by those hoping to survive despite having frozen their operations, reduced headcounts or taken on significant debt.    

The proportion is at an all-time high for the SBI, which launched in the wake of the financial crash, and is more than double that recorded at the same point 12 months ago. There are 5.9 million small firms across the UK, according to the Department for Business, Energy and Industrial Strategy (BEIS).

The UK SBI confidence measure stands at -49.3, down 27 points year-on-year. The reading is the second-lowest in SBI history, second only to that recorded in March 2020. The vast majority of those surveyed (80%) do not expect their performance to improve over the next three months.  

Close to a quarter (23%) of small firms have decreased the number of people they employ over the last quarter, up from 13% at the beginning of last year. One in seven (14%) say they’ll be forced to cut numbers over the next three months. BEIS estimates that 16.8 million people work in smaller firms across the UK.

The proportion of small businesses forecasting a reduction in profitability for the coming quarter has spiralled over the past year, rising from 38% to 58%. The figure is at an all-time high.     

Almost half (49%) of exporters expect international sales to drop this quarter, up from 33% at this time last year.  

FSB National Chairman Mike Cherry said: “The development of business support measures has not kept pace with intensifying restrictions. As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods. A record number say they plan to close over the next 12 months, and they were saying that even before news of the latest lockdown came through.  

“At the outset of the first national lockdown, the UK Government was bold. The support mechanisms put in place weren’t perfect, but they were an exceptionally good starting point. That’s why it’s so disappointing that it’s met this second lockdown with a whimper.  

“There are meaningful lifelines for retail, leisure and hospitality businesses, which are very welcome as far as they go. But this Government needs to realise that the small business community is much bigger than these three sectors.

“Company directors, the newly self-employed, those in supply chains, and those without commercial premises are still being left out in the cold. We’ve published a five-point plan to address gaps in the support landscape, and we look forward to the Treasury embracing it. Action in March will be too late to stem closures.

“We also have to look again at how we treat emergency debt facilities over the coming months. Many of those who have borrowed significantly have done so in order to innovate. It would be a shame to lose the top businesses of tomorrow because of a failure to extend grace periods today.    

“All the while our exporters are trying to get across what a new EU-UK trade agreement means for them without the cash they need to make adjustments. Direct funding to help them manage new obligations in the form of transition vouchers is urgently needed.

“This Government can stem losses and protect the businesses of the future, but only if it acts now.”    

Ends

Notes to Editors
1) FSB surveyed 1,401 small firms for the Q4 2020 Small Business Index at the end of December 2020. The survey covers a range of economic indicators including: small business confidence, employment and wages, exports, productivity, spare capacity, finance and investment. The SBI is conducted by independent research company Verve. The headline SBI confidence figures are based on a weighted index, with the share of firms reporting ‘much improved’ or ‘much worse’ confidence allocated double weighting.

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Matt Dickinson

Matt Dickinson

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About FSB

As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.

FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.