Confidence among Britain’s small businesses has fallen to its lowest level since records began, with only one in six firms expecting to grow over the next year, according to the latest quarterly Small Business Index from the Federation of Small Businesses (FSB).
The survey found that nearly one in three small businesses now expect to shrink, sell their operations or close altogether over the next 12 months. The FSB said the findings highlight the challenges facing the UK’s incoming government and warned that restoring business confidence should be an immediate priority.
The study, based on responses from 1,113 small business owners and sole traders during June, showed that the gap between businesses forecasting growth and those expecting contraction is now the widest recorded since the index was launched in 2014. The net balance of business expectations turned negative a year ago and has remained below zero ever since.
Business owners identified the state of the UK economy, rising taxes and increasing labour costs as the biggest obstacles to expansion over the coming year.
FSB Policy Chair Tina McKenzie said the figures reflected an unacceptable trend for the country’s small business sector.
“We cannot and must not accept a situation where more small firms believe they will shrink, sell up or close than expect to grow over the next year,” McKenzie said.
She described small businesses as a key driver of economic activity across the country and urged the next government to place their needs at the centre of economic policy.
The federation called on the incoming administration to honour its commitment to expand small business rates relief, an issue affecting thousands of firms following April’s business rates revaluation and the long-running freeze in relief thresholds.
McKenzie said the government’s first Budget would provide an early indication of its commitment to supporting smaller enterprises by reducing operating costs and encouraging investment, employment and growth.
The survey also pointed to continued financial pressure on trading conditions. Only one in five respondents reported higher revenues during the second quarter of the year, while more than half said their takings had declined over the same period.
Operating costs continued to rise for the overwhelming majority of businesses. Nearly nine in ten firms reported higher expenses than a year earlier, with taxation identified as the most common reason for increased costs.
The FSB also urged ministers to maintain momentum behind proposed legislation aimed at tackling late payments between businesses. The organisation said delayed payments continue to place unnecessary strain on cash flow, particularly for smaller firms with limited financial resources.
McKenzie added that policymakers should ensure small business concerns are reflected across government departments, arguing that economic growth depends on creating conditions in which local businesses can thrive.
The latest findings suggest many entrepreneurs remain cautious about the economic outlook as they await policy decisions that could shape business conditions over the coming year.
