The impacts of the COVID pandemic, and the lockdowns and worsening late payment culture which accompanied it, on the mental health of small business owners are today laid bare by new FSB findings. Its survey of 1,000 business owners finds that a third (34%) of all small business owners state that their mental health declined over the course of the pandemic. Latest Government figures show that there are 5.5 million small businesses across the UK, indicating that 1,800,000 have suffered a mental wellbeing hit due to COVID. Across all respondents, one in four (24%) report that they currently have a mental health condition such as anxiety, depression or post-traumatic stress. Among disabled entrepreneurs, the figure rises to four in ten (43%). One in seven (16%) small business owners report having a mild mental health condition, with 6% and 2% respectively stating that they have a moderate or severe condition as defined by NICE. The new research flags the extent to which small business owners are struggling to make use of the workplace health support offered by government. Only one in ten (13%) disabled business owners or business owners with a health condition have used the Access to Work Scheme, aimed at providing targeted workplace help for both business owners and employees. More than a third (35%) have not heard of the scheme at all. A quarter (25%) are not aware that sole traders are eligible to access it. With loneliness the theme of this year’s Mental Health Awareness Week, the new study also highlights the ongoing impact of the UK’s poor payment culture on mental wellbeing. Six in ten (62%) small business owners state that they were subject to late or non-payment after COVID hit, with a quarter (26%) stating that dealing with poor payment impacted their mental wellbeing during the pandemic. Wider studies underscore the isolating effect of poor payment. Estimates of the sum collectively owed to small firms in unpaid invoices vary – one recent study puts the figure at £140bn. Findings from FSB’s Small Business Index indicate that 400,000 small businesses are under threat because of poor payment practice. The cost to the average small employer of having staff away from work due to physical or mental health conditions surpassed £3,500 last year, translating to a £5bn cost to the small business community as a whole. In light of the findings, FSB is encouraging the Government to:

• Improve Access To Work take-up by ensuring health professionals point patients towards the scheme when writing fit notes.
• Launch a new, ambitious alternative to the New Enterprise Allowance to help those with mental health conditions who are out of work to create start-ups.
• Make Audit Committees directly responsibility for supply chain practice, elevating the importance of prompt payment within corporate environmental, social and governance (ESG) programmes, and place ending the UK’s late payment culture at the heart of BEIS’s forthcoming enterprise strategy.
• Develop “Pathways to Entrepreneurship” strategies aimed at dismantling the unique barriers faced by different entrepreneurs, including those with mental health conditions.
• Take forward FSB and TUC’s joint proposal for a small business statutory sick pay rebate, to help firms recover the cost of the millions of days lost to sickness absence each year.

FSB policy & advocacy chair Tina McKenzie said: “Whether it’s the migrant entrepreneur suffering post-traumatic stress, the aspiring start-up creator wrestling with depression as they struggle to find work, or the thousands of business owners who feel isolated and hopeless because of late payment, policymakers should reflect on the challenges faced by entrepreneurs during this Mental Health Awareness week. “By building on, and promoting access to, the support that’s already available to business owners and their teams, the Government can make a real difference to mental wellbeing. “Over the years, we’ve seen how a worsening late payment culture – which sees corporates use suppliers as free credit lines – has sucked the joy out of running a small business for millions, leaving many feeling completely alone, and forcing thousands to close. “At tomorrow’s Queen’s Speech, the Government can set down a clear pro-small business marker, with a legislative agenda that’s unequivocally pro-enterprise, and pro start-up. “The cost of having staff away from the workplace, including finding cover, ran into the billions for small firms last year at a time when cash reserves were stretched and the spectre of trading restrictions was ever present. “They urgently need more support to go on doing right by their staff. We hope to see the Government take forward our joint proposal with the TUC for a targeted statutory sick pay rebate.”

Inflation, geopolitical uncertainty, skills challenges and increasing supply chain issues are continuing to squeeze the outlook for business investment, according to the new EY ITEM Club Spring Forecast.

UK business investment is now forecast to grow 10% this year, having been expected to grow 12.7% in February’s Winter Forecast and 11.3% in March’s Interim Forecast. This represents an estimated £5.5bn shortfall from February’s forecast. With a sluggish recovery last year presenting a disappointing starting point for 2022, investment is now not expected to reach pre-pandemic levels until the end of this year.

The EY ITEM Club has also downgraded the outlook for UK growth overall, with UK GDP now expected to grow 4.1% in 2022 – down from the 4.2% predicted in March – before growing 1.9% in 2023 and 2.2% in 2024. Growth will be dependent on under-pressure households continuing to spend by saving less and borrowing more – and the EY ITEM Club says that the possibility they may not raises the risk of recession.

Hywel Ball, EY UK chair, says: “Uncertainty about the pandemic has been replaced by geopolitical uncertainty, which has also had consequences for the cost of capital goods and supply chain frictions. The temporary super-deduction tax incentive should support an investment pick-up this year, but its impact is being countered by strong headwinds.

“Some businesses also appear to be grappling with labour shortages and aren’t always able to access the talent needed to identify or deliver investment opportunities. At the same time, many large businesses are actually well-placed to invest, having paid down bank debt during the pandemic and built cash holdings which could can be used to fund new projects.”

The EY ITEM Club estimates that, as of February 2022, UK corporates had accumulated approximately £150bn in extra cash holdings – 5.5.% of GDP – compared to what they would have had access to had pre-pandemic deposit trends continued.

Hywel Ball adds: “Investment prospects could rely, in part, on the labour market outlook – and whether the pandemic-linked rise in non-participation can be reversed. Focusing on skills and talent will be key for businesses, society and the wider economy. Until business investment is unlocked, the UK economy will be even more dependent on consumers, who are facing their own challenges.”

The UK unemployment rate fell to 3.8% in the three months to February 2022, but the number of ‘inactive’ working-aged people is 490,000 higher than two years ago, mainly because of rising numbers of people on long-term sick leave or taking early retirement. Employment is down by over half a million people compared to pre-pandemic levels.

Consumer squeeze continues – and the risk of recession rises

While the EY ITEM Club’s central forecast does not see the UK economy entering a recession, it warns that there is a “serious risk” of this happening later in 2022 if consumer spending does not meet expectations, or if October’s energy price cap review results in a higher-than-expected rise in bills.

Consumer spending is now forecast to rise 4.9% in 2022, down from the 5.1% and 5.6% expected in March and February. Growth of 1.5% is predicted in 2023, down from the March and February forecasts of 1.7% and 2.9%.

Inflation, meanwhile, is still expected to have peaked at 8.5% in April, while average inflation for 2022 is now forecast to be 6.7% (up from 6.5%), the highest level since 1991. With average earnings forecast to rise by just over 4% this year, British workers are set to see the biggest fall in real wages since 1977.

However, consumer spending – and the economy – is expected to benefit from households continuing to release the almost-£180bn worth of ‘excess’ savings (8% of GDP) built up during the pandemic. The EY ITEM Club notes that the household savings ratio fell more rapidly in Q4 2021 than expected, falling to 6.8% from 7.5% in Q3 and a lockdown-induced 18.3% in Q1, but is still above the immediate pre-pandemic average of 4.9% (2017-19).

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The UK economy is not without supports. Momentum at the start of the year should help offset new headwinds to deliver calendar-year growth for 2022. The balance sheets of many households and businesses are unexpectedly strong, having built up a combined £300bn of ‘excess’ savings over the course of the last two years.

“But accumulated savings are not a panacea for the economy. There is a significant risk that consumers, faced with a sustained squeeze on their finances, may cut spending in response. And while the rising cost of living will affect almost all households, some are more vulnerable than others. The distribution of savings built up in the pandemic is heavily skewed towards richer households, while lower income groups will be disproportionately affected by higher energy bills and benefits increases being outpaced by inflation this year.

“The forecast for households improves significantly in 2023 and 2024, but we’re not there yet. Economic growth this year will depend heavily on squeezed households being willing to spend, which, in turn, will rely on falls in real incomes being offset by households saving less or taking on more debt. There is scope for households to do this but there are no guarantees consumers will come to the rescue.”

The EY ITEM Club expects pressure on households to ease from next year. Energy prices are predicted to fall across 2023 and 2024, pushing down on inflation, which is forecast to average under 2% in 2024. The benefits uprating in April 2023 is likely to be over 7%, well ahead of prices rises. And while high inflation will mean the four-year freeze on tax allowances and thresholds will affect more taxpayers than intended, this will be mitigated by a 1p cut in the basic rate of income tax from April 2024.

Hauliers serving music concerts, sports and cultural events will be able to move their vehicles freely between Great Britain and the EU thanks to newly-announced haulage sector rules. Designed in consultation with the live music, performing arts and sports sectors, a new dual registration measure is expected to come into force from late summer. It will apply to specialist hauliers that transport equipment for cultural events, such as concert tours or sports events. Dual registration will mean drivers with an established base in Great Britain and in another country outside of the UK will be able to transfer their vehicle between both operator licences without the need to change vehicles, have their journeys limited or pay VED in Great Britain. Transport Secretary Grant Shapps said:  “British talent has long been at the heart of global performing arts and our specialist haulage sector is critical to the success of their tours. “It is unacceptable that because of EU bureaucracy, the operations of our specialist haulage sector on which our artists rely have been put at risk, impacting the livelihoods of touring artists and sportspeople.

“Dual registration helps put this right and means that touring events can take place seamlessly across Great Britain, the EU and beyond, keeping our incredible cultural sector thriving for years to come.”

Since the UK’s departure from the EU, British specialist hauliers have been limited to visiting just three EU stops per tour. However, under the new legislation, companies with operating bases in both Great Britain and another international location can switch vehicles between the respective operator licences and make use of the internal movements permitted within each territory. This opportunity applies not just to the EU, but also to other countries, opening our doors to cultural exchange from all over the world. Tarrant Anderson, Company Director of Vans for Bands, said: “We are really pleased that the Department for Transport has engaged in detail with our sector on this critical issue and has come up with a solution to keep the live music touring industry moving. Without this initiative a large number of tours this year would simply have been unable to take place.”