The latest survey from the FSB highlights significant challenges facing small businesses due to rising wage costs.
- Confidence among small businesses plummeted to a score of -10.8 in Q2 2024, down by 16.3 points from the previous quarter.
- Soaring employment costs are cited as the primary driver for this downturn, alongside weaker consumer demand and rising tax pressures.
- Construction, wholesale and retail are among the most affected sectors, with substantial declines in confidence scores.
- The FSB calls for government action to index employment allowance to the living wage and review employment policies to support small businesses.
The FSB’s Small Business Index revealed a sharp decline in confidence, which fell into negative territory during the second quarter of the year. The index, surveying over 1,000 small businesses, recorded a confidence score of -10.8 for the three months ending in June, a substantial drop of 16.3 points from the previous quarter. This downturn indicates the growing financial strain on small business owners as they grapple with the highest employment costs on record.
Weaker consumer demand and rising tax pressures have also been identified as critical barriers to growth. According to Tina McKenzie, the FSB’s policy chair, the impact of rising labour costs could potentially stifle economic growth and lead to a reduction in small business job numbers. She expressed concerns over upcoming employment law changes, fearing they might increase the risks and costs associated with hiring staff for small enterprises.
Labour’s proposed overhaul of workers’ rights has further compounded these challenges, potentially adding to the financial burden on employers. McKenzie has called on the government to index the employment allowance to the rising living wage as a measure to alleviate the pressure on small firms and address the ongoing economic inactivity crisis. She emphasised the need for a thorough review of all government employment policies to ensure they do not negatively impact growth and jobs.
The report also pointed out sector-specific struggles, with the construction industry emerging as the least optimistic, recording a confidence score of -20.7. The wholesale and retail sector followed closely with a score of -19.5, a significant decline from its previous positive outlook. The accommodation and food services sector saw a drop in confidence, sliding to -15.9 points from -11.8 in the prior quarter. Manufacturing, which had been the most optimistic sector in the first quarter with a positive score of 19.2, experienced the most dramatic decline, plunging to -12.7 in the second quarter. Meanwhile, the information and communication sector saw its confidence fall to -9.2 points, and the professional, scientific, and technical sector dropped to -2.6 points, making it the least negative among the major sectors.
Tina McKenzie underscored the need for more targeted support, particularly for the struggling construction sector, where confidence has hit a new low. She advocated for reforms, including changes to the consumer infrastructure levy, to help small building firms secure the necessary financing to sustain their operations.
The current economic climate underscores the urgency for targeted government interventions to support the sustainability and growth of small businesses amid rising costs.
