‘Unprecedented’ number of small businesses expect to shrink or close down

A record number of small businesses are expecting to shrink or close down in the next year, a leading industry group has warned, amid a “vicious” cycle of low growth and fears that next month’s Budget could cause more pain for businesses.

Nearly one in three of the UK’s small businesses (30 per cent) expect to cut operations, sell up or collapse in the next 12 months, according to the Federation of Small Business (FSB).

Owners said the November Budget came at a “make-or-break” moment for small firms as net confidence dropped to -58 in the third quarter of the year, lower than the previous -44 figure and the second lowest reading since the start of the pandemic. 

Industry officials also said the portion of firms expecting to shrink was “unprecedented” as they urged Chancellor Rachel Reeves to lower business rates and reduce taxes on entrepreneurship.

The survey showed only 18 per cent are forecasting growth in the next year while 6 per cent expected to close in that time, suggesting some 300,000 firms could go insolvent over 12 months. 

The FSB’s policy chair Tina McKenzie warned the small businesses, often referred to as “the backbone of the UK economy”, faced bigger threats than at other times and required a “positive backing” from the government. 

“Millions of small businesses shrinking, closing, or selling up instead of growing means a vicious cycle of a lower tax take, higher unemployment, and greater demands on the state all exacerbating each other in a downward spiral,” McKenzie said. 

“The Chancellor’s Budget speech will be a make-or-break moment for small businesses. 

“The stakes couldn’t be higher. Without small businesses economic growth is a lost cause. Small firms will be looking for positive backing.”

For the final three months of the year – dubbed the “golden quarter” as it often brings a rush of income for retailers and hospitality sectors–  nearly half (49 per cent) expected their revenue to fall. 

Only 21 per cent say their revenue will grow as the end of the year comes. 

Budget a ‘make-or-break moment’

The survey is likely to pile pressure on Reeves to support smaller businesses at the Budget, with most owners putting their pessimism down to low growth hopes and rising taxes. 

The state of the domestic economy – which grew by just 0.1 per cent in August – was the driving force behind low confidence for 68 per cent of small firms while the tax burden, which is around a 15-year high for businesses, was a factor for 45 per cent of companies. 

Over a third of respondents (34 per cent) said labour costs were contributing to lower growth hopes. 

Businesses are also sounding the alarm over the government’s Employment Rights Bill, which would hand workers new protections on sick pay and a right to sue bosses for unfair dismissal from their first day on the job.

Last week, the FSB joined 12 other business groups in urging the House of Lords to back an amendment which would mean these rights took effect after six months.

The government has insisted that the bill would pass through parliament unchanged as it would consult owners on implementation of changes to workers’ rights. 

One change could see union bosses gain access to offices on a weekly basis, with fines worth up to £75,000 to be handed to those who do not comply with new rules.