Action needed to relieve the pressure
Small firms are facing pressures comparable in scale to those during the Covid pandemic, according to a report from the House of Commons Business and Trade Committee.
Tax burdens, energy costs, crime and late payments are among the issues highlighted in the report, which was launched by committee chair Liam Byrne to an audience of small business owners at the Federation of Small Businesses Westminster office.
The committee’s inquiry found that while emergency support was rapidly mobilised during the pandemic, there is currently no equivalent, coordinated response to the cumulative pressures now facing small and medium-sized enterprises (SMEs), despite their central role in the UK economy.
SMEs account for 99.8 per cent of all UK businesses and form the backbone of local economies and high streets.
Evidence to the committee has shown that many are now operating with little financial resilience and limited capacity to absorb further shocks.
The Federation of Small Businesses estimates that tax compliance costs SMEs 242 million hours and nearly £25billion each year.
There is also concern that the UK’s VAT threshold is discouraging firms from expanding, while complexity and cliff-edges penalise growth.
The committee is calling for the reform the VAT system to remove growth-discouraging cliff edges.
That would include reviewing the VAT registration threshold and reducing complexity that penalises expanding firms, particularly in labour-intensive sectors.
It also wants business rates replaced with a fairer system that reflects a firm’s ability to pay, reduces the burden on bricks-and-mortar businesses, and supports the vitality of high streets.
Other recommendations include simplifying and improving access to the skills system for SMEs, ensuring training and apprenticeship provision is designed around the needs of smaller employers and supports productivity growth.
The MPs have also called for introduced targeted energy support for SMEs, including fairer pricing, stronger protections for smaller users, and greater transparency in the energy market.
Committee chair Liam Byrne said: “The evidence we heard during this inquiry was stark. Many small businesses are now operating under pressures comparable to those experienced during the Covid pandemic but this time without an emergency support framework in place.
“SMEs are facing late payments, rising energy costs, increasing crime, a complex tax system and barriers to growth that are compounding rather than easing.
“These pressures are not isolated; together they pose a real risk to business viability, high streets and economic growth.
“High streets do not die by accident. If the government is serious about growth, it must set out a more coherent and ambitious plan for the businesses that make up so much of the UK economy.”
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