Small firms suffer a pounding thanks to Government policy, says FSB

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RBS
Mike Cherry

The increase in small business costs directly resulting from Government policy decisions has significantly outpaced inflation in recent years, according to the FSB’s new Impact of Government Policy Index.

Produced by leading independent consultancy the Centre for Economics and Business Research the report finds that a wide range of Government taxes, reliefs and employer obligations have caused outgoings for smaller firms to rise by an average of 12.5% in the five years to 2016. That compares to a cumulative Consumer Prices Index figure of 7.7% over the same period.

Mike Cherry, FSB National Chairman, said: “Policy should always be evidence-based. This new independent research sets out just how the costs of many historic and individual policy decisions have mounted up, heaping large and sustained pressures on small firms at a rate that’s significantly outstripped CPI.

“Given that small firms employ 60 per cent of private sector workers and are the engine room of our economy, all policymakers should take heed of this cumulative burden when it comes to future policy interventions.

“As the Budget approaches, entrepreneurs will be looking to the Chancellor for measures to help bring down the spiralling costs of doing business, as well as making sure that all Ministers and Departments know the business costs of any proposed new interventions.”

Medium-sized businesses report the highest IGPI for 2016 (120.1) followed by micro (118.1) and small (111.4) firms.

The construction sector is hardest-hit by Government interventions according to the new report, with costs rising 34 per cent as a result of policy decisions. Being a labour-intensive industry, construction firms have been heavily impacted by the introduction of pension auto-enrolment, increases to minimum wage rates and rising employer National Insurance Contributions.

Corporation tax liabilities for construction businesses have also steadily risen as they have recovered from the financial crash. Meanwhile, frequent changes to the Annual Investment Allowance (AIA) have made future planning a challenge across the sector.

Mr Cherry said: “Small construction firms are being disproportionately squeezed by Government-imposed costs. If this administration is serious about tackling the housing crisis, that has to change.

“Our members are contending with a huge number of taxes, duties and employer obligations. Then when a useful incentive like the AIA does comes along it chops and changes so much that businesses don’t know where they stand from one year to the next.

“More needs to be done to encourage small businesses to grow. That includes incentivising patient capital through reliefs for early stage investors and through effective replacement of the European Investment Fund.”