- 64% of business owners worried they won’t survive the next 12 months
- Accountants more pessimistic than small business owners regarding economic and political recovery, with 1 in 2 now believing economic pressures will take a minimum of three years to ease
- Almost a quarter (24%) have reduced employee benefits as a result of the cost of living crisis
- 35% of SMEs and accountants are concerned the current economic climate will hinder Rishi’s ability to deliver on fiscal growth promises
In the midst of political uncertainty and ahead of the Autumn Statement, new research from FreeAgent, the cloud accounting software company, reveals that almost a quarter (23%) of SMEs believe the UK economy has been damaged irreversibly by Brexit and/or Covid-19 - with an astonishing 64% of business owners stating they are worried their businesses won’t survive the next 12 months.
The research reveals a disparity of opinion between business owners and accountants regarding the current and future political and economic outlook of the UK. The vast majority of accountants (62%) and just under half (45%) of SMEs think they are either about the same or worse off under Rishi Sunak’s government despite popular belief that he would bring greater certainty. However, 1 in 5 (22%) SMEs believe there is a much greater chance of their business surviving now that Sunak is Prime Minister (compared to just 7% of accountants).
The research also highlights the key issues and challenges facing both business leaders and accountants - and provides the government with important insights on what SMEs and accountants want implemented in the Autumn Statement.
Political uncertainty wreaks havoc on SMEs
When this survey was first run in mid October (when Liz Truss was Prime Minister), a total of 28% of accountants and small business owners believed economic pressures would ease in 3-5 years. This has now increased to 38% following previous Chancellor Kwasi Kwarteng’s disastrous mini Budget and the subsequent election of Rishi Sunak as leader.
The biggest leap in pessimism came from accountants, with almost half (50%) now believing that economic pressures will take 3-5 years to ease. This is up from 38% when Liz Truss was in office. With this in mind, the findings suggest that some small business owners have more optimism in Mr Sunak’s economic plan, with 28% believing that economic pressures will ease in 1-2 years, up from 22% under Liz Truss’ leadership.
Continued economic strain is crippling businesses
The research also highlights how many businesses are struggling to survive in the current economic climate, with the majority saying they are concerned they won’t make it beyond the next year or so. While tax cuts could lead to a healthier jobs market for accountants and geographical expansion for SMEs, more than a third (37%) of accountants and 22% of SMEs say they would use any future tax cuts announced by the government just to stay afloat.
Almost 2 in 5 (37%) survey respondents say they are not confident that the government will step in to support businesses facing an economic environment about to enter a long recession. In fact, 64% of business owners are worried they can only survive the next 12 months, while just 16% of business owners think they’ll remain open indefinitely. Almost 1 in 3 (30%) accountants think their practice will only survive for the next year, with 10% only hoping to remain solvent for six months.
Similar issues plague both accountants and business owners
Both accountants and business owners are currently grappling with significant economic and political issues, with Covid and Brexit in particular having a major impact. In addition, inflation, finding the right staff, and rising energy bills are all cited amog the top pressures for both accountants and SMEs, though accountants are also struggling with the impact of lockdown closures and businesses are struggling as a result of ongoing supply chain issues.
Despite needing to find and retain the right staff, 26% of accountants have implemented hiring freezes, almost a quarter (24%) of SMEs have reduced employee benefits as a result of the cost of living crisis, and 25% have halted training programmes. However, only 12% of accountants have sacrificed staff training, pointing to their need to upskill their staff and remain compliant. In a nod to valuing machines more than humans, both SMEs and accountants would rather reduce employee benefits (avg 23%) than cut spend on technology (avg 11%).
Differing views on a chaotic economic situation
The research also highlighted differing views among SMEs and accountants on what will help the current economic situation. When looking to the future, SMEs want the government to expand the energy cap to cover small businesses (43%), introduce new government loans specifically for energy bills (37%) and to implement a windfall tax on energy/fuel companies (33%). Accountants, on the other hand, agree that a windfall tax (43%) would be the most useful thing for the government to introduce, alongside expanding the energy cap (41%) and introducing government-driven discounts on bills (34%).
Some government policies, such as the implementation of new tax legislation in the form of Making Tax Digital (MTD) - a key part of the government’s plans to make it easier for businesses to get their tax right and keep on top of their affairs - is viewed as positive, with very few (6%) suggesting it be cancelled entirely. However, there has been criticism on both sides for the lack of clarity in communication from the government, with 50% of those polled citing this as the biggest issue around MTD.
Roan Lavery, CEO of FreeAgent said: “Our research paints a fairly bleak picture for the UK economy from the perspective of both accountants and SME owners. It is therefore imperative that the government creates a resilient environment where small businesses can not only survive but also grow. The fact that the majority of those we asked feel their business will fail in a year’s time should be the wake up call our policy makers need to hear. They must act now, before it’s too late.”
Yogesh Dhanak, Senior Technical Advisory Manager at ACCA said: “For too long small businesses in this country have struggled with access to finance, staff retention, and a changing tax landscape which may only be exacerbated with the Chancellor’s Autumn Statement. Our members are rightly worried about the future of their businesses and their client’s businesses and we support any measures which are designed to ease the burden on the millions of UK SMEs who are already struggling with inflationary hikes and sky high energy prices.”
Julia Kermode, Founder of IWORK said: “We are about to enter one of the most challenging economic environments in recent times and small businesses, sole traders and freelancers are more exposed than ever. Protecting these workers is vital to safeguarding the wider UK economy and it's critical that action is taken before additional macro economics pressures drive these groups further into the red. Small businesses and independent workers hold the key to the economic recovery – failure to support these dynamic, entrepreneurial individuals will only deepen the crisis.”