Following the decision by the Bank of England to increase the base rate from 1.25% to 1.75%, Federation of Small Businesses National Chair Martin McTague said: “The need to get a grip on inflation is clear, with costs at a record high for 89% of small businesses according to FSB’s latest Small Business Index – driven by fuel, utilities, inputs, labour and tax hikes.
“Moving interest rates is not without consequences: it’s removing steam from the economy at a time of meagre growth. Small businesses already face grave uncertainty as they try to recover from the impact of Covid, while contending with the cost of doing business crisis.
“First, many commercial, personal and professional loans that small businesses and sole traders hold are not protected by fixed rates and will move in line with the increase today. In a situation where inflation is already putting many small firms in extremely difficult conditions, there is now further concern that these businesses will face higher costs in paying back their loans.
“Second, attempts to get back to a functioning commercial lending market will be hampered as new products will become more expensive – and so small firms will find it harder to access affordable credit. The British Business Bank’s Recovery Loan Scheme is coming back later this month, and this could not happen soon enough. If the economy slows in autumn, it will be even more important for the scheme to be operational and in place, so it can be flexed up.
“Hard-working individual business owners are also already fighting an uphill battle with supply chain disruption, increasing utility bills and surging fuel prices. Action must therefore be taken on other challenges that small businesses face.
“Many members are reporting mushrooming energy bills multiplying by four or five times in recent months. Small business energy customers don’t benefit from consumer protections, nor do they have the negotiating power of their larger counterparts, making utility bill inflation especially tricky to handle. Struggling micro-businesses should be offered help on energy costs to match that being given to households.
“The Government should also be looking at other measures to ease soaring costs of doing business, such as a reversal of the hike in National Insurance, cutting VAT and fuel duty, and introducing new reliefs on business rates.
“The cost of living crisis can’t be solved without at the same time solving the cost of doing business crisis; we must bring down inflation, but the negative aspects of today’s hike make the case stronger for small business support as thousands upon thousands of small firms will have less financial room to manoeuvre.”