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Small businesses are fast losing their earlier optimism

A slowdown in the UK’s economy is denting the confidence of small businesses as they prepare for the changes that Brexit will involve

Following last year’s EU referendum, UK small businesses were optimistic about the future; however, there has been a fall in confidence as companies grow concerned about the state of the economy.

Data compiled by the Federation of Small Businesses (FSB) shows that just over half (52%) of small businesses believe the slowdown in our economy is putting up a barrier to their growth. Businesses across the country are now starting to see the result of a rise in inflation, combined with a fall in consumer spending.

Drop in confidence

In May, inflation hit an almost four-year high of 2.9% after increasing sharply in the months following the Brexit decision. This has seen it stay above the average growth in nominal wages, which has resulted in a drop in real pay and reduced consumer spending power.

The report released by the FSB highlights a number of concerns from Britain’s small businesses, including the sharp increase in business rates that hit in April. Many are still waiting for the financial support that was promised to lessen the effect on those that lost out on small business rate relief.

Other concerns raised in the FSB report include increases in labour costs and the burden of the tax system. These areas mean that the operating costs of small businesses are at a level not seen in four years.

Areas of improvement

In the light of the report’s findings, Mike Cherry, the national chairman of the FSB, has called on the government not to revisit plans to increase taxes for the self-employed. These plans were shelved following the March budget after they were heavily criticised and Cherry feels that reintroducing this rise would stop people starting their own businesses.

The government announced plans for a £300m hardship fund to reduce the impact that changing business rate levels would have. Cherry sees the appropriate distribution of this as a key priority for Sajid Javid, the communities secretary. Many small businesses are still facing the threat of further action from local authorities chasing payment of bills that are over-inflated and incorrect.

Another area that he feels is having a negative impact on small firms is the lack of investment in the country’s infrastructure, especially across the northern part of the UK. He believes the government needs to stand by its promise to have a more balanced economy rather than one that is largely focussed on the south.

Some of the businesses that are experiencing the biggest falls in confidence are those that are consumer facing, especially the retail and arts sectors. In addition to feeling the effect of a drop in consumer spending, they also depend heavily on EU-27 workers and are concerned about the effect the Brexit negotiations will have on staffing levels.

As the government gets deeper into discussions on how we will operate post Brexit, small businesses will get a clearer indication of the effect it will have on them. This could decrease confidence levels even further unless the areas highlighted in this report are addressed.

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