Recent data reveals small business confidence in the UK is waning, according to the FSB survey, primarily due to rising wage costs.
- The FSB’s Small Business Index recorded a stark drop in confidence, falling to -10.8 in Q2, driven by increasing employment costs.
- Concerns are growing among small businesses over the potential impact on job numbers and economic growth due to escalating labour costs.
- The construction industry recorded the lowest confidence among sectors, with significant declines also noted in wholesale, retail, and manufacturing.
- A call for government action has been made to review employment policies and provide targeted support to struggling industries.
The latest survey from the Federation of Small Businesses (FSB) indicates a concerning decline in small business confidence across the UK. The Small Business Index, which takes the pulse of over 1,000 small businesses, plunged to -10.8 in the second quarter of the year. This represents a considerable drop of 16.3 points from the previous quarter, marking a transition into negative territory.
Central to this decline are soaring wage costs, a matter highlighted as the principal driver of diminishing confidence. Small business owners are finding themselves burdened with the most substantial employment costs on record, creating significant financial pressures.
Additionally, the survey pointed to weaker consumer demand and rising tax obligations as further challenges throttling growth. Tina McKenzie, the policy chair of the FSB, cautioned that increasing labour costs could potentially stifle economic growth and lead to a reduction in small business job numbers.
A profound concern was expressed regarding imminent governmental employment law reforms. These changes, feared to complicate hiring processes, could exacerbate the financial strain on small employers. Labour’s proposed modifications to workers’ rights add another layer of complexity, potentially increasing costs for businesses.
McKenzie urged the government to index the employment allowance in line with the living wage as part of alleviating pressures on small firms. There is also a call for a comprehensive review of all government employment policies to ensure they do not impede growth and employment.
Sector-specific findings depict a bleak outlook, with the construction industry scoring -20.7, denoting the most pessimistic perspective. Wholesale and retail sectors are not far behind, experiencing a confidence plunge to -19.5. The accommodation and food services sector saw its confidence drop to -15.9 from -11.8 in the previous quarter.
Manufacturing, once the beacon of optimism in the first quarter with 19.2 points, witnessed the most significant downturn, plummeting to -12.7. The information and communication sector’s confidence slipped to -9.2, whereas the professional, scientific, and technical sector showed the least negativity, standing at -2.6 points.
McKenzie stressed the urgency for sector-targeted interventions, especially in the construction industry, where morale is particularly low. She advocated for alterations to the consumer infrastructure levy to aid small construction businesses in accessing necessary funding.
Government attention to employment costs and support for small businesses is critical in reversing the decline in confidence.
