The ‘perfect storm’ of economic forces facing small businesses this autumn is off the scale

Over the past 30 years, I have run a number of different businesses and largely survived the four serious recessions I can remember. But the perfect storm of economic forces that small businesses face this autumn is on a completely different scale.

This is not like the nagging inflation of the 1970s, or the soaring interest rates and high unemployment of the 1980s.

Indeed the current economic crisis could be much, much worse than the credit crunch of the late Noughties.

It has been hard enough for business owners to deal simultaneously with the ill-timed national insurance hike, corporation tax rises, shortages of labour in almost all sectors, soaring inflation, and unprecedented increases in input costs? Now, ballooning energy prices will deliver the coup de grace.

We are not talking about a difficult few months; this is like returning to a war-time economy, such are the unprecedented disruptions to normal economic activity.

Thousands of small businesses, their finances already devastated by two years of the Covid pandemic, are doomed to collapse this winter.

Covid and the lockdowns it bred undermined the balance sheets and cash reserves of these businesses and, without help, the doubling, trebling, even quadrupling of energy costs will kill them.

As they bid to become Britain’s next prime minister, Liz Truss and Rishi Sunak compete to offer the most attractive package of aid to households, but appear oblivious to the needs of small businesses.

My federation estimates that 400,000 of Britain’s 5.9million small companies folded in the first year of the pandemic, despite bounceback loans and emergency grants. I fear we could lose half a million more this winter, along with the five or six jobs that the typical enterprise supports.

Without radical government intervention, that figure will be much higher.

Consumers are clearly feeling the impact of much higher bills and that is despite being offered at least some level of protection by the domestic energy price cap. Unfortunately for business owners it has no commercial equivalent.

A poultry farmer got in touch with us recently to report that the bills for keeping his birds alive will rise from £23,000 a year to a staggering £112,000 from October.

Such stories are legion. A small independent craft brewery in Essex has seen its electricity costs rise from £3,000 to £14,000. A single restaurant in Liverpool reports its bills have trebled from £2,000 to £6,000.

How on earth is anyone supposed to recoup that sort of leap in an input cost?

The answer of course is that it is simply impossible for these well-established businesses to make up such exorbitant increases by adding a few pennies to a loaf of bread, or slapping another 10 per cent on the price of a pint of beer.

Belt-tightening consumers, already facing a devastating loss of disposable income because of their own rising fuel bills and mortgage costs, will not be able to pay it.

Figures from the Office for National Statistics show that, after the pandemic, 40 per cent of small businesses had less than three months cash on hand.

The coming crisis is not going to trim the fat off complacent businesses which thrived during the halcyon days of low interest rates and inflation.

It is going to make many previously healthy businesses unviable.

Mr Sunak thought boldly during Covid, but seems strangely detached today. Miss Truss appears more engaged, and her pledge to reverse the national insurance increase is welcome.

But, as things stand, such a measure will be woefully insufficient. Nothing less than help on the scale of Covid-like multi- billion-pound relief measures will prevent the decline of our small business community, the unheralded backbone of our economy and society.

Britain’s small and medium-sized businesses (SMEs) employ 16million people. If they go bust in droves there will not only be jobs losses but less revenue for the Treasury from tax on profits, and the banks will suffer an epidemic of loan defaults.

To PREVENT this, VAT and green levies should be slashed on utility bills immediately. Then the new chancellor must revive plans for government-backed emergency loans to business, as well as paying grants through the business rate system as happened during the pandemic.

They should also look at giving small firms access to the consumer energy price cap, or a new version of it.

Some will say the country cannot afford to bear the costs of another Covid-scale rescue operation.

But can we afford to remain passive bystanders when hundreds of thousands of small businesses are in dire peril through no fault of their own?

Martin McTague is the Chairman of the Federation of Small Businesses