Interest rates are a straitjacket on business investment as FSB urges Government to raise VAT threshold

Press Releases 22 Jun 2023

FSB responds to interest rates rises

Responding to news that interest rates have increased by 0.5 points to 5% FSB National Chair Martin McTague said:

“The Bank of England (BoE) is risking economic slowdown across our small business community, with a jarring 0.5% increase in interest rates. We are standing at a crossroads. Inflation and interest rates are unrelenting.

“An increase in interest rates comes as no surprise – it’s a tried-and-trusted lever to pull in such times – but the size of the increase will hurt, and rate rises are not a magic wand in reducing inflation. This was driven by the highest core CPI rate in 30 years, but it has significant repercussions for everyone, not least for the 1.5million on variable mortgages.

“While higher interest rates are a tool to control inflation, the weight of escalating costs means consumers have less disposable income to circulate in the economy. When the money in their pockets is worth less, the upshot is reduced sales for businesses.

“It’s like adding another heavy load to an already full plate. Banks have a responsibility to show understanding and patience, especially to those who took variable-rate Coronavirus Business Interruption Loans (CBILS) and are now faced with higher costs. Instead of treating loans as just another expense, we need to think of them as a lifeline to keep small businesses trading during these challenging times.

“High street retailers, start-ups, local bakeries, and tech innovators alike are all feeling the pinch. As the weight on the small business and self-employed community grows heavier, we must strike a delicate balance. Our entrepreneurs need room to breathe, room to innovate and crucially room to grow.

“To help consumers and businesses, the Government could raise the VAT threshold from £85,000 to £100,000. This move could cushion some of the hardest blows of inflation, preventing tax increases from exacerbating the impact of price hikes on businesses and in turn, their customers.

“Meanwhile, energy suppliers should allow firms to ‘blend and extend’ their contracts so they can take advantage of lower wholesale prices. Late payments should also be a top priority, as unpaid invoices can stifle growth and stability.

“Our latest Small Business Index (SBI) survey reveals a stark snapshot of our current economy. We are seeing a divide, where 40% of firms encountered a dip in sales in the first quarter of 2023, while a third managed to increase them.

“This is a testament to the resilience and determination of our small business community – 46% of them said they were optimistic for the upcoming quarter.

“However, rising interest rates are not just numbers on a page, they are lived realities that influence consumer behaviour. The BoE should proceed with caution, mindful of these broad-ranging effects.”

Media contact 

Anna Slater

Anna Slater

Deputy Head of Media and Communications

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 You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.