Recent findings from the FSB’s Small Business Index have revealed a significant decline in small business confidence in the UK, attributed primarily to escalating wage costs.
The Small Business Index survey, which encompasses responses from over 1,000 small businesses, recorded a confidence score of -10.8 for the three months ending in June. This represents a sharp decline of 16.3 points from the preceding quarter, underscoring the financial strain on small business owners faced with record-high employment costs.
Additionally, the survey highlighted weaker consumer demand and increasing tax pressures as further obstacles to growth. Tina McKenzie, the FSB’s policy chair, expressed concern that rising labour costs could suppress economic growth and lead to a reduction in small business job numbers. She also raised concerns regarding upcoming government employment law changes, which could exacerbate the risks and costs for small businesses when hiring staff.
The potential overhaul of workers’ rights proposed by Labour could further intensify these challenges. McKenzie urged the government to index the employment allowance to the rising living wage to alleviate pressure on small firms and address the ongoing economic inactivity. She stressed the need for a comprehensive review of all government employment policies to ensure they do not negatively impact growth and jobs.
The FSB’s report also identified sector-specific issues, with the construction industry emerging as the most pessimistic, recording a confidence score of -20.7. The wholesale and retail sector followed closely with a score of -19.5, a notable decline from its previously positive outlook. Confidence in the accommodation and food services sector also decreased to -15.9 points from -11.8 in the prior quarter.
Manufacturing, which had been the most optimistic sector in the first quarter with a positive score of 19.2, experienced a dramatic decline, plunging to -12.7 in the second quarter. Similarly, the information and communication sector saw its confidence level fall to -9.2 points, and the professional, scientific, and technical sector recorded a drop to -2.6 points, making it the least negative among the major sectors.
McKenzie emphasised the necessity for more targeted support, particularly for the struggling construction sector where confidence has reached a new low. She advocated for reforms, including changes to the consumer infrastructure levy, to help small building firms obtain the financing needed to sustain their operations.
The latest survey by the FSB highlights the pressing challenges faced by small businesses in the UK, primarily driven by rising wage costs. Urgent government action and policy reviews are necessary to support small firms, mitigate job losses, and foster economic growth.