Rising costs have created a “ticking timebomb” for UK small business owners, the chairman of the Federation of Small Businesses (FSB) has warned, with almost half a million firms at risk of going bust within weeks without a fresh wave of government support.
While the FSB chairman, Martin McTague, applauded the chancellor Rishi Sunak’s latest support for consumers through the £15bn cost of living package announced last week, he said some of those recipients could lose their jobs unless the government rolled out targeted measures for their employers.
“We don’t have any problem with the way the chancellor dealt with consumer needs,” McTague told BBC Radio 4’s Today programme. “But there is still a massive problem with small businesses. They are facing something like twice the rate of inflation for their production prices, and it’s a ticking timebomb. They have got literally weeks left before they run out of cash and that will mean hundreds of thousands of businesses, and lots of people losing their jobs.”
McTague pointed to figures from the Office for National Statistics, which showed that 40%, or 2m, of the UK’s small businesses had less than three months’ worth of cash left to support their operations. Of those 2m, the FSB chairman said about 10% – or 200,000 – were in “serious trouble”, and that another 300,000 “have only got weeks left”.
He said: “It is a very real possibility because … they don’t have the cash reserves. They don’t have any way they can tackle this problem.”
McTague cited one case in which a hotel owner in Scarborough had the profits wiped out by soaring energy bills, which were five times their normal levels. “They weren’t able to trade any longer without essentially trading at a loss and therefore damaging the future of their business and everybody that worked for them.”
Consumer price inflation hit 9% in April, the highest level since 1982. Costs have been driven higher by a jump in energy bills, record petrol prices and the rising cost of a weekly shop. The Bank of England has estimated inflation will peak at about 10% later this year.
Businesses have also faced soaring costs, with factory input prices increasing by 18.6% over the past year, a record high. Many firms are raising their prices in response, feeding into inflationary pressures across the country. On Monday, the tool and equipment rental firm Speedy Hire confirmed it had raised its prices in April to “offset the effects of cost inflation”. However, it warned that profits could be hit if customers were resistant to the price rises.
McTague said that without further support, the expensive emergency assistance used to keep businesses afloat through the Covid-19 pandemic would effectively be wasted.
“The chancellor spent approximately £45bn making sure those businesses survive the Covid crisis,” the chairman said. “Are we seriously expecting him now to abandon them just as they’ve managed to get through one crisis and effectively lose that money for the taxpayer?”
Three-quarters of small- and medium-sized UK companies are worried about the long-term impact the cost of living crisis, soaring energy bills and rising inflation will have on their business, according to Barclays’ SME Barometer, released on Monday.
- Where is the help for the forgotten small business owners?
- Biggest business groups unite in call to take the ‘wait off’ SMEs
- Small businesses frustrated as suppliers still blame poor customer service on pandemic
- Businesses raise concerns over the cost of net zero amid energy crisis
- Sunak races to finalise cost of living response after energy bills warning