Employment costs impacting small business confidence

Despite a positive start to the year, recent data shows that SME confidence has fallen back into negative territory.

According to the latest findings, the majority of small businesses cited employment costs as being the main factor for increasing their overheads over the last year.

Tina McKenzie, FSB’s Policy Chair, commented on the Small Business Index (SBI) findings: “After a strong start to 2024, we were all hoping that the latest quarter would be just as positive for small businesses – if not more so. But sadly it was not to be.

“Small businesses are looking with trepidation at the Government’s forthcoming plans to change employment, which could both increase risk around small businesses employing people, and the costs when they do. The rise of labour costs will hold back economic growth and points to the possibility of a contraction in small business job numbers, which would be terrible news for firms, for staff, for local communities and the national economy.

“Taxes and employment costs are already soaring for small employers. The Government should formally index the Employment Allowance to the rising living wage to help alleviate pressure on small firms and resolve the economic inactivity crisis. Every line in the Government’s employment plans must be checked for negative impact on growth and jobs.”

Tina added, “We’re still waiting for action from the Government on the long-running sore point for small firms of late payment. This could be tackled by giving audit committees of large firms oversight of payment practices in their annual reports – something that would not cost the Government a penny, but which could help millions of small businesses’ cashflow improve significantly.

“Overall, the small business community is looking for reassurance from the Government that it is listening to their concerns, especially around tax and employment.

“The fall in confidence among small firms is disheartening, but need not become a self-fulfilling prophecy. With the right support, we know that small businesses can thrive and drive the economic growth that the Government has said is its priority.

“Now, as we head into the next quarter, we’re staring down the barrel at some tough challenges if we want to rebuild confidence.

“The riots have left small businesses picking up the pieces, so to turn this around, the Home Secretary needs to facilitate fair treatment of SMEs by the insurance industry. Additionally, the Government and police commissioners need to work together to clearly explain how small businesses can claim lost earnings under the Riot Compensation Act.”

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