Small business confidence drops amid inflation and tax hikes

The Federation of Small Businesses warned the Chancellor that concerns about inflation and high taxes had already led some companies to cut back on their hiring and investment plans.

A "soaring" proportion of companies were citing fuel and utility costs as a major barrier to growth, the business lobby group said.

The FSB's call to action came as the results of its latest quarterly survey revealed a more than two point drop in its Small Business Index, from +18.6 for the second quarter to +16.4 in the third.

"As things stand, its planned hike to NICs – which serve as a job tax – will see firms with even less room to manoeuvre when it comes to investment, recruitment and reskilling, whilst leaving many with no choice but to raise prices. The risk of stagflation is very real, but there is still time to act," said FSB national chairman, Mike Cherry.

Ahead of the Autumn Budget scheduled for 27 October, Cherry called on the Chancellor to increase the Employment Allowance from £4,000 to £5,000 and to reduce VAT on utility bills for the smallest businesses.

Treasury plans to raise Class IV and Employer NICs while raising taxes on dividends by 1.25 percentage points in the Spring would lead to a third of employers raising prices, 24% of them to cut their own compensation, 17% to hire less and 16% to cut investment, the FSB said.

And also according to the latest quarterly SBI, the proportion of small business facing rising operating costs stood at 76%, 36 percentage points more than a year ago, while the share that said they were being held back by labour shortages was at a five-year high.

“With small business confidence dropping just at the point when they should be bullish about recovery, this Budget is the Chancellor’s opportunity to deliver.”