Why small firms can’t afford another year of ‘wait and see’

Starting a business requires optimism: a belief that there’s an opportunity worth pursuing, even in uncertain conditions. But in recent years, that optimism has been repeatedly tested, with SMEs having to navigate a global pandemic, soaring inflation, supply chain disruption, and a prolonged cost of doing business crisis.

While small businesses have repeatedly shown their ability to adapt, there’s a limit to how much uncertainty they can be expected to carry.

This week, the Business and Trade Committee, a cross-party group composed of MPs from major political parties, delivered a clear message to the Government: the UK’s small businesses require meaningful action, not just reassurance that things will eventually get better.

The Committee raised concerns about the Government’s response to its recommendations for small business growth, arguing that some areas require further action to address the pressures numerous businesses have highlighted. Of the 36 recommendations made earlier this year, the Committee noted, only six were fully accepted.

For many SMEs up and down the country, day-to-day struggles are becoming more pronounced. Businesses are having to contend with rising energy standing charges and higher wage bills following increases, while many also face the prospect of increases in business rates. 

At the same time, the lingering effects of the cost of living crisis mean many consumers are continuing to tighten their belts, leaving some businesses with fewer customers through the door, and less money being spent when they do. For firms already operating on tight margins, these pressures are making it increasingly difficult to plan ahead.

The Committee's original report, published in February of this year, warned that many businesses were facing pressures comparable to those experienced during the pandemic, but without anything close to the level of support that was available then. And that warning, the Committee says, still rings true.

Every day business owners have to make decisions about everything from hiring staff to investing in new equipment, signing longer leases to expanding into new markets. Those decisions can be tough to make at the best of times, but they become much harder when future costs are unpredictable and long-standing issues around tax, business rates and energy bills remain up in the air.

Small and medium-sized enterprises account for the overwhelming majority of UK businesses, and they employ millions of people across the country. They're the lifeblood of many local high streets and communities, creating jobs, supporting supply chains, driving innovation, and also catalysing local pride. So, when small businesses struggle, it can leave towns with fewer jobs, make high streets quieter, and weaken local economies.

The Committee has called on ministers to return with stronger proposals covering areas including tax, procurement, energy costs and business crime, amongst other things. Whether those proposals ultimately take shape remains to be seen, but if economic growth is to be stimulated, supporting SMEs undoubtedly needs to be a big part of the plan. Relying on businesses to find new ways of absorbing rising costs and policy uncertainty is, most business owners would agree, unlikely to work.

What many SMEs want more than anything else is clarity. Knowing what costs to expect and having a clearer view of the future is one thing that will make it easier to commit to decisions about investment, hiring and growth.

The country’s small businesses have shown time and again that they’re capable of weathering difficult conditions. But after years of disruption and rising costs, many now need greater certainty to make decisions about their future. If the UK is to achieve its goal of sustainable growth, creating the conditions for businesses to invest and thrive will be an important part of that.