Small business confidence lowest since pandemic

Confidence among small businesses hit its lowest recorded point outside the Covid pandemic in the fourth quarter of last year, according to the Federation of Small Businesses' (FSB) Small Business Index (SBI).

The headline confidence reading fell from -24.4 points in Q3 to -64.5 points in Q4.

This is a fall of 40.1 points, and the lowest reading on this measure since the -143.4 points registered in the first quarter of 2020, when Covid first broke out in the UK.

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The confidence tumble was recorded across all major sectors, with none managing to register a positive confidence score, and accommodation and food services the least optimistic major sector.

Revenue performance hit a record low over Q4 among small firms, with the one in five who said that their revenues had grown more than offset by the over half who said they had worsened.

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Net revenue predictions for the coming quarter fell significantly to -25.9%, with just a quarter of small firms forecasting a rise in revenues in Q1 and half predicting a fall.

Small businesses

The domestic economy was the top barrier to growth, but the tax burden jumped to second place with two in five raising it as one of the top barriers.

Labour costs were in third place, cited by 42%.

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2025 could see lower levels of expansion among small businesses, with two in five saying they believe their business will grow over the next 12 months, down from over half who said the same thing in the previous survey.

The proportion bracing for contraction, meanwhile, jumped to a quarter its highest-ever level outside the pandemic.

Tina McKenzie, FSB policy chair, said: "The fourth quarter blues reported by small firms underline how urgently the Government's growth push is needed.

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"Small firms are understandably nervous about their prospects as 2025 gets underway," she said.

She said the Employment Rights Bill was a ‘major source of stress' but the Government's plans to reduce late payment ‘cannot come soon enough'.

"The Government has called for regulators to put forward ideas to nurture growth, while we sent our own list of suggestions targeted at helping small businesses, which we look forward to seeing adopted within the regulatory system.

Government push for growth

"We would encourage the Government to extend this push to more of a pro-growth mindset to HMRC as well. Small firms collectively spend £25 billion and 280 million hours on tax compliance each year; reducing those amounts even by just a few percent would be great news for productivity, and for stress levels among small business owners."

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She added the Government must prioritise spending on programmes to prioritise spending on small business growth.