Up to a quarter of a milion small firms could go bust this year and even more will cut jobs, a leading business group says.
The warning from the Federation of Small Businesses (FSB) comes after a survey of its members showed that almost 5% said they expected to close this year, while many more are at risk after having frozen their operations, reduced headcounts or taken on significant debt.
The number of firms at risk of closure is the highest ever recorded by the FSB and double the level seen at this point last year.
Confidence among small firms stands at its second lowest reading in the history of the survey, while one in seven (14%) of firms surveyed said they will be cut staff in the next three months.
The survey’s findings have led to a plea for help from the FSB, and comes after business support measures announced by Chancellor Rishi Sunak last week were widely dismissed as being no more than a ‘sticking plaster’ for the problems facing many businesses.
FSB chairman Mike Cherry said: “The development of business support measures has not kept pace with intensifying restrictions. As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods.
“A record number say they plan to close over the next 12 months, and they were saying that even before news of the latest lockdown came through.
“At the outset of the first national lockdown, the UK Government was bold. The support mechanisms put in place weren’t perfect, but they were an exceptionally good starting point. That’s why it’s so disappointing that it’s met this second lockdown with a whimper.
“There are meaningful lifelines for retail, leisure and hospitality businesses, which are very welcome as far as they go. But this Government needs to realise that the small business community is much bigger than these three sectors.
“Company directors, the newly self-employed, those in supply chains, and those without commercial premises are still being left out in the cold. We’ve published a five-point plan to address gaps in the support landscape, and we look forward to the Treasury embracing it. Action in March will be too late to stem closures.”
Around 16.8m people work for SMEs in the UK, but the FSB survey reveals that almost a quarter of small companies (23%) have decreased the number of people they employ over the last three months.
The proportion of small businesses forecasting a reduction in profitability for the coming quarter has spiralled over the past year, rising from 38% to 58% – an all-time high – while almost half (49%) of exporters expect international sales to drop this quarter, up from 33% at this time last year.
Confidence was higher in the West Midlands, but up to 20,000 firms in that region are still at risk, according to the FSB.
A spokesman for the Department of Business, Energy and Industrial Strategy said: “We understand these are extremely challenging circumstances for businesses, which is why we have put in place one of the most comprehensive and generous packages of business support in the world worth £280bn.
“This includes a new one-off grant worth up to £9,000, VAT relief, various loan schemes, a business rates holiday as well as the extended furlough scheme.”