Cost crisis threatening to undermine returning North West small business confidence, says Federation of Small Businesses

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FSB Merseyside and Cheshire’s Daren Shaw, Area Leader for Cheshire, has called on political leaders to combat the cost of doing business crisis or risk undermining fragile confidence among North West firms, which has returned to positive levels and – for the first time in a year – improved on the previous quarter.

FSB’s latest Small Business Index (SBI) for Q1 2022, shows that the confidence level of North West firms now stands at 3%. Over the past 12 months the figure consistently fell – from 39% in Q1 2021 to -4% in Q4 2021.

While this might indicate early signs of optimism seeping into the region after the roller coaster of uncertainties associated with the pandemic, it is important to remember year-on-year confidence is down by -36%. Small businesses continue to focus very much on recovery.

New Office for National Statistics (ONS) figures show producer input price inflation at a record-high 18.6%, and the consumer prices index at 9%. Further, according to the SBI, lending to small businesses is at an all-time low and six in ten firms are impacted by late payment.

FSB Merseyside and Cheshire’s Daren Shaw, Area Leader for Cheshire, said: “We hear a lot from politicians about the cost of living crisis, but very little about the cost of doing business crisis which underlies it.

“Small Businesses are struggling to absorb cost rises and are left with no choice but to pass them on to customers, as inflationary pressure collides with an increasingly tight labour market, which makes it harder and harder to find the right people and pushes up wages.

“The Government must now look at targeted interventions that will do most for local economies hardest hit by the pandemic, communities now faced with low growth and surging inflation. It should certainly help small firms with property costs – increasing the ceiling for small business rates relief and extending the energy support issued via the council tax system to the rates system.

“With employment costs, including national insurance, now way up on what they were this time last year, installing a sick pay rebate for the smallest businesses would give them a measure of breathing space.

“So many firms have been lost over lockdown. We need policymakers to come forward with the Enterprise Strategy that we were promised a long time back – clearly outlining how, now we’ve lost the New Enterprise Allowance, government intends to spur those thinking about starting up to turn vision into reality, shoring up our already foundering recovery.

“Lenders pulling up the finance drawbridge for small firms will make things much worse. Businesses are born every day across the UK and need funding to get off the ground and grow to become profitable and create opportunities.

“Further, our debilitating poor payment culture has deteriorated over the pandemic. Here we have an area where government can take definite action at no cost at all – making audit committees directly responsible for supply chain practice.

“FSB’s new research clearly shows we are seeing the green shoots of returning small business confidence after such a torrid time. It is of utmost importance that it is protected and nurtured. Our recent local elections have brought new elected representatives, and we will continue to work with and lobby local policymakers and partners on the necessary levers for positive change.”

FSB’s SBI shows that the majority (61%) of small firms were impacted by late payment of invoices over the first quarter of this year. A quarter (26%) say the propensity for late payment is growing – close to one in ten (7%) experienced late payment for the first time in Q1 of this year.

Fewer than one in ten (9%) small firms applied for finance in Q1 2022, the lowest proportion since SBI records began. The share that saw applications approved (43%) is also at a record low.   

The number of respondents describing the availability of credit as “good” (19%) has fallen to its lowest point since 2016. A minority (44%) of successful applicants were offered a borrowing rate of up to 4% in Q1 – the figure is down 32 percentage points on the same period last year.

In addition, the latest Bank of England figures show the annual growth rate of lending to SMEs at a record low, despite small firms making net debt repayments of close to £1bn in March alone. Lending to big corporates, by contrast, has increased significantly since the start of the year.

The SBI shows that one in ten (11%) small firms across the UK plan to close, sell or downsize their business over the coming year, equating to more than half a million businesses.

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