Small business confidence holds steady, with consumers called on to respect “house rules” as England unlocks

• Federation of Small Businesses (FSB) quarterly Small Business Index (SBI) falls back slightly after roadmap delay, but growth and hiring aspirations strong
• Debt, rising costs, skills shortages and international trade disruption all causes for concern among 1,500 respondents
• UK’s largest business group urges shoppers to respect business safety measures as mask and distancing requirements end in England

FSB is calling on shoppers to abide by the “house rules” of small firms across England from today as its latest SBI shows businesses are still positive about the future despite a delay to the ending of restrictions and mixed messaging around how to operate safely.

Half of small business owners (50%) predict that their business performance will improve in the next three months, compared to one in three (32%) who expect it to worsen, according to the new FSB study of more than 1,500 firms. The UK SBI confidence measure has fallen to +18.6 in Q2, down from +27.3 in Q1 of this year, but up significantly from the -5 recorded in Q2 last year.

Growth and hiring aspirations are at high levels: one in five respondents (21%) intend to increase staffing levels in the next three months, and 54% of respondents expect to grow their businesses, the highest proportion since Q1 2017.

Nearly two thirds of small businesses surveyed (64%) said that operating costs had increased in the past quarter compared to last year, up 20 percentage points from Q1 2021. Four in ten (42%) cite inputs, such as raw materials and components, as a main contributor to this increase, up 12 percentage points on last quarter. Labour costs (36%), utilities (28%), and fuel (26%) are also frequently flagged as sources of rising outgoings as inflationary pressure takes hold.

The share of firms citing lack of access to appropriately skilled staff as a barrier to growth has soared to its highest level on record (37%), with the proportion of respondents citing it as a barrier up 18 percentage points compared to Q2 2019, before the pandemic hit. Input costs are cited as a barrier to growth by a quarter (25%) of respondents, up from 16% in Q1 2021 and just 11% in Q2 2020.

Amid mounting evidence that lockdowns have exacerbated the UK’s late payment crisis, half (54%) of respondents who successfully applied for credit in Q2 2021 did so in order to manage cash flow, up 9 percentage points compared to Q2 2019. With emergency loan schemes now closed, a third (32%) of those who applied for credit last quarter were rejected, the highest proportion since Q4 2015. Four in ten (37%) small businesses with debt now view their level of borrowing as unmanageable.

Elsewhere, new trading rules continue to be a source of pain for firms that do business internationally. Close to a quarter (23%) of exporters have stopped selling into the EU either temporarily or permanently. The overwhelming majority (92%) of importers and exporters have experienced shipping delays since April.

FSB National Chairman Mike Cherry said: “As England fully reopens, small businesses are, in the main, well-positioned to take full advantage of the opportunities on offer to them as the economy recovers.

“While restrictions have now been lifted, we’re urging all shoppers to respect the house rules at each business they visit from today, as owners strive to keep customers and staff safe. The Government and police should be getting the message across that firms will be supported if customers refuse to abide by their terms of doing business.

“Small businesses have invested time and money preparing for today’s reopening, swiftly adapting to help keep covid numbers as low as possible.

“Skills shortages and rising input costs should concern us all – anything which puts the brakes on small business recovery is bad news for the economy. Recent announcements around upskilling are welcome but will not be in place rapidly enough to provide immediate relief.

“The rising price of business-critical insurance cover is another area of real concern, with firms struggling to access the policies they need to operate.

“Policymakers should be looking at ways to offset these spiralling operating costs – reducing employer national insurance contributions and taking forward the insurance recommendations we have proposed to the Treasury.

“The fact that two-fifths of small businesses with borrowings view their debt level as unmanageable strikes a warning note. Now that bounce back repayments are kicking in, we’re urging banks to reach out to customers to make them fully aware of their Pay As You Grow options. These facilities were made possible by the Government to help struggling firms. Lenders should remember that fact as collections start.

“Businesses are still trying to get across the full implications of a new EU-UK trade deal, which is taking effect by degrees. Without the big legal, logistics and HR departments at the disposal of large corporates, a sizeable number of small exporters have thrown in the towel, stopping sales to the EU altogether. We’re encouraging the Government to reopen the SME Brexit Support Fund to help these firms get back to the international trade that is so often a driver of innovation and growth.

“Our late payment crisis – which was already destroying thousands of small firms a year before the pandemic struck – has worsened through lockdowns. We’ll be working closely with the new Small Business Commissioner on how to urgently readdress the widespread poor payment practices which have no place in a ‘build back better’ approach to economic recovery.”

1) FSB surveyed 1,561 small firms for the Q2 2021 SBI between 24 June and 9 July 2021. Statistics are based on a weighted analysis of survey results. Weighting is applied to ensure figures are representative of the UK’s business population.

2) The SBI 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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About FSB
As experts in business, FSB offers members a wide range of vital business services, including advice, financial expertise, support and a powerful voice in Government. Its aim is to help smaller businesses achieve their ambitions. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy.