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Small business confidence plunged in 2011 under the weight of low consumer demand and high inflation, notes the ‘Voice of Small Business’ index.
This index, which represents 1,600 responses from businesses across the UK, fell by 15.2 points in the final quarter of 2011 to a record low score of -24.5. All areas of the UK except the East of England registered falling business confidence. Even there, the future outlook is pessimistic.
This is of particular concern because of the reliance on small businesses to create jobs and support the recovery. A recent report has revealed that more than 8 out of 10 new jobs across the EU member states and participants in the Enterpreneurship and Innovation Programme were created by SMEs between 2002 and 2010.
Improving inflation prospects, owing to the falling impact of January 2011’s VAT increase, are bound to offer some relief to beleaguered businesses. Over three quarters of businesses reported rising costs as inflation continued to pressurise margins. However, with the highest increase in business rates in 20 years due in April (5.6%), it remains to be seen how far reduced inflation will be offset by higher taxes.
Chancellor George Osborne spoke to the Asia Financial Forum this week as he attempts to strengthen economic and business ties with Asia in light of the on-going Eurozone saga. His report included a number of provisional reforms which include ‘cutting business tax rates to among the lowest in the developed world’. This, as yet, has little relevance with the current domestic situation.
The Federation of Small Businesses (FSB), which has supported measures outlined in the Autumn Statement, has now called on the government to take further action and accelerate their announced policies to boost small business confidence, such as encouraging the flow of credit and increasing investment through the seed enterprise investment scheme.
The National Chairman of the FSB, John Walker, anticipates some measure of increasing confidence, but reiterates the need for government support:
"The message is clear - things are going to get worse before they get better. But, we are hopeful that as the inflationary pressures lessen in 2012, that businesses will become more confident. There are some good policy proposals in the pipeline too. However, the Government needs to quickly put in place the actions that it has promised. Small firms have heard what the Government has to say but are still waiting to see implementation. We believe that must be the Government's priority: to make 2012 the year of doing, with the aim of creating a dynamic business landscape in which our entrepreneurs can grow and flourish."
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