Thousands of small businesses at risk amid ‘unprecedented’ confidence slump since Brexit vote

Thousands of small businesses are struggling to stay afloat amid an “unprecedented” slump in confidence since the Brexit vote, the government has been warned.

Sajid Javid, the chancellor, was urged by the Federation of Small Businesses (FSB) to introduce “radical interventions” in next month’s budget to address slowing economic growth.

The group said thousands of smaller firms were being crippled by spiralling operating costs, and warned major reductions in business rates were necessary to avoid “a very bleak winter”.

“Small businesses have been left hamstrung by uncertainty for the past three years,” said Mike Cherry, the FSB chairman. 

“We need to see the chancellor step up to the mark next month with measures that will reinject optimism into the small business community and enable growth. Otherwise, we’re in for a very bleak winter.”

The FSB recommended that the retail discount – which for two years allows small retailers with rateable values of up to £51,000 to claim a 33-per-cent discount on their rates bills – be increased to at least 50 per cent, made permanent and extended to small firms operating in other sectors, including manufacturing.

It is also calling for the threshold for small business rates relief to be increased from £12,000 to at least £30,000.

“Business rates reform must be a priority,” Mr Cherry said. “This unfair, regressive tax – which hits firms before they’ve made their first pound in turnover, let alone profit – continues to threaten the futures of small firms all over the country.”

The number of businesses going into administration hit a five-year peak in the first quarter of 2019, the Insolvency Service said in April.

The government agency recorded an increase of nearly 22 per cent on the previous quarter, with 451 administrations in the first three months of the year, and 31,527 individual insolvencies – the second highest rate since 2010.

Small businesses accounted for 99.3 per cent of the UK’s private-sector companies and 48 per cent of employment at the start of the year, the latest Department of Business figures show.

With an annual turnover of £1.5 trillion in 2018-19, small businesses contributed considerably to the economy, which unexpectedly shrank 0.2 per cent in this year’s second financial quarter – its first contraction since 2012. 

Thousands of smaller firms feel unable to prepare for a no-deal Brexit, which would make it difficult “to trade, invest, hire staff and ultimately, survive”, the FSB warned on Thursday after Boris Johnson announced his deal with the EU.

Small firms are spending £2,000 on average on no-deal preparations, rising to £3,000 for those who import and export, an FSB survey found in September.

Only 8 per cent of business leaders favour a no-deal Brexit, a poll of 655 Institute of Directors members suggested on Saturday, with 55 per cent preferring Mr Johnson’s deal to another extension.

Despite the fear of no deal, some experts argued that Mr Johnson’s new deal spelled doom for many small businesses.

“All the promises of unfettered access have been abandoned … Northern Ireland is a small-business economy and this is a death knell for some of those businesses,” Tina McKenzie, the FSB for Northern Ireland’s chair, told Sky News.

The FSB’s latest warning echoes a call from Lord King, the former Bank of England governor, that Brexit is stopping the government from addressing deep problems with the economy.

Additional reporting by PA