UK productivity gap set to persist as seven in ten small firms hold back investment

Press Releases 2 Jul 2019
  • Full Q2 Small Business Index (SBI) published today shows investment intentions at two-year low
  • More than a third of firms say access to right staff is a major barrier to growth 
  • Number of business owners describing new credit as “unaffordable” hits four-year high

Small firms are struggling to expand, hire and raise productivity as political uncertainty leaves them increasingly hamstrung, according the full SBI Q2 2019 report from the Federation of Small Businesses (FSB) released today.

The considerable majority (72%) of small firms are not planning to increase capital investment in their businesses over the coming quarter. The figure is at its highest since Q2 2017. According to the ONS, business investment fell for four straight quarters last year for the first time since the financial crash.

Elsewhere, more than a third (35%) of small firms say accessing appropriately skilled staff is now a major barrier to growth – the biggest proportion since Q3 2015. The net balance of small businesses that are increasing headcounts – the proportion of those hiring new staff less the proportion reducing their team size – stands at a three-year low (-2%).  

Net migration from the EU fell to 74,000 in the year ending December 2018, down from 189,000 in the year ending June 2016. One in five (21%) small employers rely on staff from the EU.      

The quarterly UK SBI confidence measure stands at -8.8 in Q2 2019, down 22 points compared to the same period in 2018, marking a fourth consecutive negative reading. Such a sustained slump is a first for the index, which launched in 2010.

FSB National Chairman Mike Cherry said: “It’s impossible for small business owners to invest for the future when we don’t know what the future holds.

“We urgently need to see both prime ministerial candidates spell out their plans for supporting small firms and securing a pro-business Brexit – one that encompasses a comprehensive deal and a substantial transition period. Fast and loose talk about accepting a chaotic no-deal Brexit in four months’ time is not helpful.   

“Lifting productivity among the smaller firms that make-up 99 per cent of our business community is a must. But until we have the political certainty that enables us to take risks and innovate, achieving that goal will remain elusive.

“A tight labour market and falling migration don’t help matters. It’s becoming harder and harder to find the right people to fill vacancies. With that in mind, we welcome the announcement of a Migration Advisory Committee review of future salary thresholds for those looking to make the UK their home.”

The latest SBI also finds that only one in seven (14%) small firms are applying for new credit. The figure is largely unchanged over the past two years, and is down two percentage points compared to Q2 2016. 

More than four in ten (43%) small firms describe new credit as “unaffordable” – the highest proportion since Q1 2015. 

Fewer than one in five (15%) successful credit applicants are using new finance to expand their firms, down 10 percentage points compared to the same period last year.    

Mike Cherry added: “With so much uncertainty afoot, caution among lenders is understandable. They seem happy enough to issue new credit in some cases but are upping premiums to cover themselves. 

“Against this backdrop, it’s more critical than ever that the British Business Bank is properly equipped to build on its vital work in providing start-up loans and enabling equity investment in small firms. A sudden withdrawal of European Investment Fund support for small businesses without a suitable domestic replacement would be catastrophic.”   

Notes to editor

1) FSB surveyed 982 small businesses for the Q2 2019 Small Business Index between 13 May and 27 May 2019. 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.  

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.

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