Report paints mixed picture across industries as business insolvencies double

Close to half of small firms do not expect to grow over the coming year amid a cost-of-doing-business crisis and widening sectoral optimism gap, according to the latest SBI from the Federation of Small Businesses (FSB).  

The headline SBI UK confidence reading stands at +15.3 for Q1 2022, meaning more small business owners expect an improvement in their commercial performance over the coming quarter than expect the opposite. The figure is down 12 percentage points on the same period last year, but is up significantly on Q4 2021 (-8.5). 

Firms in the accommodation and food sector (+16.5), which have benefitted from relaxed travel rules, are among the most bullish this quarter, as are those engaged in information and communication activities (+32.1), many of which adapted fast to hybrid working. 

By contrast, manufacturing (-9.1) and wholesale and retail (-8.2) firms report negative readings as surging operating costs, supply chain disruption, labour shortages and consumer belt-tightening weigh on expansion plans. Retail sales dropped by 1.4% in March, according to an update from the ONS released on Friday. 

A record-high 87% of small business owners state that operating costs are up compared to this time last year. The shares citing fuel (60%), utilities (58%), and taxation (27%) as contributors to that increase are also at record highs, following the hiking of national insurance rates and issuing of new business rates bills this month.   

Against a backdrop of global supply chain disruption, labour shortages and rising wages, significant proportions also flag inputs (48%) and labour (40%) as contributors to higher outgoings. The majority (55%) of small business owners say they are operating below capacity.

An ONS survey of 9,000 businesses published on Thursday shows just shy of one in seven businesses not currently fully trading. Close to one in three (29%) are having to pass on rising costs to customers, and one in ten (12%) have been directly impacted by supply chain disruption. 

A fifth (20%) of small business owners are planning to increase headcounts in the coming months. The proportion that has upped wages over the past twelve months (62%) is at a two-and-a-half year high. 

The number of firms stating that they currently export (23%) is down 4 percentage points year-on-year to its lowest point since spring 2020 (22%) when restrictions aimed at halting the spread of Covid first took effect.

One in eight (13%) small exporters have temporarily or permanently stopped sales to the EU, and a further 9% are considering doing so. A similar proportion (13%) has established, or is looking to establish, a base on the continent. Increasing numbers (10%) are exporting to new markets outside the EU.     

More than 5,000 corporate insolvencies were registered across England and Wales in Q1 of this year according to figures released on Friday. The figure is more than double that recorded over the same period in 2021, and is 15% greater than in Q1 2019, before the pandemic hit.   

FSB National Chair Martin McTague said “It’s encouraging to see small business confidence back in positive territory, though the picture across sectors is distinctly mixed.”

“The small business community shrank in size to the tune of hundreds of thousands over the pandemic. With Covid numbers now falling, this needs to be the summer where we start to reverse that trend – policymakers should be doing all they can to facilitate and encourage start-ups and side hustles.”

“The New Enterprise Allowance, which helped move people off benefits and economic inactivity into small business ownership, has now sadly been withdrawn. The Government’s own statistics show 500,000 people, including many over-50s, have stopping working altogether – they should be encouraged to start a small business this summer.”

“We look forward to working with BEIS on new measures to help budding entrepreneurs without start-up capital at their disposal as part of its forthcoming enterprise strategy, the launch of which shouldn’t be allowed to drift further. We’re encouraging policymakers to build on the success of the Centre for Entrepreneurship’s Migrant Entrepreneurship Programme.”

“The message from us to consumers, policymakers and corporates alike is clear: let’s make this a small business summer – backing the 99% on which our recovery will depend.”  

“As things stand, spiralling costs are eroding small business margins at a rate that many have never experienced before, whilst workplace absences are making it hard to operate at full capacity in a tight labour market. At the same time, new paperwork and supply chain disruption are weighing on our importers and exporters, and an endemic poor payment culture continues to destroy thousands every year.”

“Taking forward our joint proposal with the TUC for a small business sick pay rebate, adopting our recommendation to make audit committees directly responsible for supply chain practice, and launching a new trade support fund for small firms would go a long way to helping many to start firing on all cylinders again.”