“We’re seeing a toxic cocktail of rampant inflation, high taxes, soaring energy costs [businesses do not benefit from the price cap] and shrinking economic growth. Action is needed right now.”
Martin McTague, national chair of the Federation of Small Businesses
The last few weeks have seen the media, politicians, and commentators on social media focus on the large companies who dominate the energy and fuel sectors and the enormous profits they are reporting, together with the substantial dividends they are paying shareholders. On the other side of the equation, they have also had their say on the growing number of employees across a rapidly rising range of occupations feeling that they have no other option but to take industrial action just to maintain a living wage in the face of spiralling double-digit inflation.
Small businesses and the cost-of-living crisis
Until these last few days however, there seems to have been little said about a group who make up the backbone of the private sector in this country. Businesses we all use daily for purchasing a wide array of services or goods. At the start of 2021 there were over 5.5 million small businesses. Of these, 4.2 million had no employees other than the owner. A small business is one defined as having between 0 and 49 employees and as a sector, they had a combined turnover of £1.6 trillion with those who did have people working for them employing nearly 13 million people.
To put this into some sort of context, at the same time there were over 35,000 medium size (50–249 employees) and 7,655 large businesses (employing over 250 people). The small businesses though make a major contribution to the country’s economy, employing 48% of those in employment and contributing 36% of the total of the private sector’s turnover.
Last Friday, the latest Small Business Index for the second quarter of this year was released by the Federation of Small Businesses (FSB). It did not make encouraging reading, in fact it was bleak. It came with a health warning from Tina McKenzie, the organisation’s policy and advocacy chair:
“Without help, we are facing a generation of lost businesses, jobs and potential”.
At least one in ten small businesses likely to close
The index which measures confidence across small and medium size businesses fell to -24.7 in the second quarter of 2022, a drop of 40.0 points, making it the second largest fall in the history of the index, with only the drop of over 120 points at the start of the pandemic being worse. The responses to the survey indicated that without government assistance 53% of these businesses predicted that they would stay the same size, downsize, or as reported by 14% of small firms, closing their businesses altogether.
Two weeks ago, the Ainsty Farm Shop near York made this decision. In a post on their Facebook page they said:
“We are very sorry to have to let everyone know that 22 years after opening our first farm shop and 17 years in our current premises, we are having to close Ainsty Farm Shop.
“We would like to thank everyone for all of their support over the years, it has been very much appreciated and great fun! We have loved serving you, listening to some fabulous stories and generally getting to know our customers.
“This has simply come about because of the huge rise in electricity prices. As you probably all understand, running a butchery, bakery & deli uses a lot of electricity and we can now no longer carry on.”
Happily, they plan to continue with their direct order businesses, but this is still the loss of yet another small business and a huge loss to the community.
The Brexit effect
The concerns highlighted in this report had previously been underlined in a SME Insights Report produced by Simply Business (July 2022), with 70% of those surveyed saying that rising costs were their biggest challenge. In addition, 60% thought the economy would worsen throughout the year with the same number wanting the government to reduce the energy price cap.
The worries and uncertainties expressed in the reports are hardly surprising given the current crisis.
Jonathan Portes professor of economics and public policy, Kings College, London confirmed that, “The cost pressures resulting from higher energy and food prices – which are a global phenomenon – are the main issues confronting small businesses”.
He went on to say:
“A significant minority (about a fifth) identify Brexit as negatively affecting their business. Yet only a small proportion of businesses – no more than six to eight percent – trade directly with the EU. This implies that a considerably wide range of businesses are experiencing negative Brexit impacts, whether through labour shortages or through supply chains.”
Lows for the high street
Still recovering from the worst of the pandemic, it is thought the high street – with its mix of retail, hospitality and services – will be badly hit. Small businesses account for the vast majority of cafes, restaurants, bars, independent shops, and hairdressers etc. Can you imagine being a baker with ovens on most of the night as energy bills rocket, especially if you’re about to exit a fixed rate deal? Some bills are increasing by as much as 800–1,000% coupled with other rising costs across the board.
It will not be possible for the businesses to absorb all these costs resulting in rising prices to customers whose own disposable income, if any, is likely to be severely depleted. The same will be true for trades such as painters and decorators, plumbers and the like, whose services are likely to be in far less demand as potential customers try to undertake the work themselves to save money. Many traders, when you take into account the long hours they work, are already taking home less than the minimum wage.
With two weeks yet to run in the Tory leadership campaign and a total lack of anything like a concrete plan, the FSB’s plea for help might not receive an answer anytime soon:
“It is beyond clear that the Government needs to act, to help businesses facing acute pressures. The next Prime Minister must affirm their commitment to small businesses, self-employed people, and entrepreneurialism, and take swift action on urgent sources of pain which threaten the survival of countless firms.”
