Small businesses feel confidence fall in face of tax hikes and inflation

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Confidence among small businesses has fallen ahead of this week’s Budget as inflation and up-coming tax hikes, have put a damper on plans to invest.

The Lancashire-based Federation of Small Businesses latest quarterly index reports that nearly two thirds (62 per cent) of the nearly 1,400 small firms surveyed do not expect their business performance to improve over the coming three months.

Treasury plans to increase Class IV and Employer NICs as well as dividend taxation by 1.25 percentage points in the Spring will add to inflationary pressure, cause firms to put the brakes on hiring and discourage investment, the research finds.

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A third of employers say that they would be forced to increase prices due to the changes. They will also cut their own compensation (24 per cent), recruit less (17 per cent) and scale back investment (16 per cent).

Mike Cherry from the Federation of Small BusinessesMike Cherry from the Federation of Small Businesses
Mike Cherry from the Federation of Small Businesses

Among company directors – who were excluded from the Government’s income support programmes during lockdowns – four in ten (42 per cent) say the tax changes would inhibit their ability to save for the future, further reducing the already small share that save into a pension, whilst also causing them to increase their debt levels (9 per cent).

Four in ten (41 per cent) sole traders say they will have to increase prices, with some (6 per cent) saying they’ll shut down their business permanently if the NICs hike goes ahead unchecked. More than one ten (11 per cent) say they will “reconsider being self-employed”.

FSB national chairman Mike Cherry said: "Small businesses right across the UK are hoping this Budget reflects the Government’s aspiration to create a low-tax, high-productivity economy.

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“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.

“Increasing the Employment Allowance from £4,000 to £5,000 could make a real difference to the prospects of small employers as we head into an uncertain winter.”