Small business confidence was at a 4-year low before the referendum

Small business confidence was already low before the EU referendum took place, a new survey reports.

The newly published Small Business Index for Q2 2016 by the Federation of Small Businesses (FSB) polled firms across April and May. The uncertainty surrounding the referendum was a factor but the report notes that the overall decline in confidence reflected a wide range of different issues. The fall in confidence also followed a year-long trend since a high in confidence in Q2 2015.

The year on year fall is the largest since the FSB started tracking small business confidence in 2010 and confidence was lower than it had been at any time since Q4 2012.

There are signs that small businesses may be reducing staff numbers overall. A net balance of respondents reported a decline in employee headcount for the second consecutive quarter. According to the report, while UK unemployment figures have fallen, the small business labour market may have suffered from falling profits and rising labour costs.

A large number of businesses have cited labour costs as a main cause of changing business costs. Some 46.7% of respondents cited labour costs compared to 38.4% in the same quarter last year. The introduction of the National Living Wage (NLW) and the continued rollout of workplace pension auto-enrolment have both contributed to higher labour costs.

Wage inflation related to the NLW has proven particularly marked in sectors that had a high incidence of low pay, such as food services and accommodation.

Taxation has also risen as a major cause of changing business costs, with 18.6% citing tax obligations as an issue, compared to 9.6% a year ago. Rising costs could be contributory factors to any reduction in headcount and could also leave some firms facing insolvency if they are unable to get their finances in order.

Investment intentions have also fallen, with just 12.2% of respondents saying they intended to increase capital investment over the next 12 months. This is a fall from 31.9% who said they intended to increase investment in Q2 2015. It was also the lowest since Q3 2012, when 9.9% said they intended to invest.

By Phil Smith

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