Record number of small firms set to close

A record number of small business owners are planning to shut up shop over the coming 12 months, putting the UK on course to lose more than 250,000 firms, a report warns today.

The report warns exporters need urgent help to deal with the challenges of adapting to post-Brexit requirements. Picture: Steve Parsons/PA.

The latest Federation of Small Businesses (FSB) quarterly report shows confidence at the second-lowest ebb in its ten-year history. One in five firms also reduced headcounts in the three months to December and one in seven expect to do so this quarter.

On top of the challenges caused by fresh lockdown measures, the report says exporters are having to assess what a new EU-UK trade agreement means for them, but without the cash they need to make adjustments to their operations.

Meanwhile, the latest Royal Bank of Scotland (RBS) PMI monthly report also released today showed that the Scottish private sector remained in a downturn during December, with a further drop in services activity outweighing a strong improvement in manufacturing growth.

Just under 5 per cent of the 1,400 firms surveyed for the FSB study say they expect to close this year. The proportion is at an all-time high for the organisation’s small business index report, which launched in the wake of the financial crash, and is more than double that recorded at the same point 12 months ago.

Close to a quarter of small firms have decreased the number of people they employ over the last quarter, up from 13 per cent at the beginning of last year. Almost half of exporters expect international sales to drop this quarter, up from 33 per cent at this time last year.

FSB national chairman Mike Cherry said the UK government’s business support measures have not kept pace with intensifying restrictions.

“As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods. A record number say they plan to close over the next 12 months, and they were saying that even before news of the latest lockdown came through.

“At the outset of the first national lockdown, the UK government was bold. The support mechanisms put in place weren’t perfect, but they were an exceptionally good starting point. That’s why it’s so disappointing that it’s met this second lockdown with a whimper.

“Company directors, the newly self-employed, those in supply chains, and those without commercial premises are still being left out in the cold.”

Mr Cherry said more support for exporters was also urgently needed, with the FSB calling for direct funding to help them manage new post-Brexit obligations in the form of transition vouchers.

Although the RBS PMI report showed a further reduction in inflows of new work for Scottish businesses, firms held an optimistic outlook for activity during 2021, with sentiment hitting a ten-month high.

The improvement in confidence was linked to hopes of a timely end to the pandemic amid vaccine rollouts, and a swift economic recovery. However, December saw an 11th successive monthly reduction in staffing levels at Scottish private sector firms.

A message from the Editor:Thank you for reading this article. We’re more reliant on your support than ever as the shift in consumer habits brought about by coronavirus impacts our advertisers. If you haven’t already, please consider supporting our trusted, fact-checked journalism by taking out a digital subscription: www.scotsman.com/subscriptions.