Good News for the Economy? Tell That to the Small Firms Barely Hanging On

Inflation Falls, Unemployment Rises – And Small Businesses Are Still Paying the Price

On paper, this week’s economic figures look like progress. Inflation is easing, wages are rising and interest rates may soon fall. But for the UK’s 5.6 million small and micro businesses, none of this feels like recovery. Their costs are still climbing, hiring is becoming unaffordable, skills are harder to find and demand remains fragile. What the headline numbers mask is a growing gap between economic theory and everyday reality – and it is being felt most acutely by the businesses that employ millions, support local communities and quietly keep the economy on its feet.

There’s very little cheer for small and micro businesses in this week’s economic figures.

Inflation is down to 3%. That simply means that prices aren’t rising as fast as they were, not that prices are falling. For small businesses the general inflation figure means nothing because their own costs are still rising far faster.

Unemployment is up to 5.2%, the highest level in nearly five years. For small and micro businesses who can’t afford to hire people given the increases in wages and national insurance costs that hardly comes as a surprise.

Wage growth continues to slow, raising the prospect of another cut to interest rates in the spring. A cut to interest rates will be welcome by many business having to borrow, if they can find a lender, but even though wage growth is slowing they are still struggling to compete on wages with their bugger competitors and are struggling to find the skills they need to grow their businesses.

Does it sound as if, even in light of the ‘good’ economic news, we’re simply moaning? I can assure you we’re looking at the everyday realities of the lives of the 5.6 small and micro business owners without whom the economy would be on its knees. We’re the ‘backbone’ and ‘lifeblood’ of the UK Economy yet it seems that few, with the power to keep those businesses upright and blood pumping, realise what that really means. Without the small and micro businesses there is no economic growth, innovation and job creation, no contribution to the regeneration of the high streets and no value add to local places and communities.

In the meantime, there’s a real fear for the next generation of workers in the UK. Young people are struggling to find work. Young people, despite all the negative publicity, want to work. They want to move out from their parents and have homes and families. We need them to work because our state pensions amongst other things depend on them paying national insurance contributions and our public services depend on them paying tax. Yet the hospitality sector where so many ‘learn’ to work is being decimated by rising costs including business rates (despite reductions). Small and micro businesses are drowning in red tape, struggling with understanding what new rules around programmes like Making Tax Digital mean for them, and trying to automate the roles that they can no longer afford to hire people to do. AI adoption is being encouraged by the Government at the same time as they appeal for firms to hire young starters. We would love to hire, if we could, but we can’t afford to invest in people at the same time we invest in tech, and we don’t have to pay NICs on AI.

And just one more small rant: how come wages in the public sector have risen on average by 7.2% while in the private sector they’ve risen by half that? It’s not because small businesses don’t want to pay fairly. We do partly because it’s the right thing to do and partly because it gives us access to skilled, talented people and we want them to work for us and to stay with us. How are small businesses to compete though with the public sector for skills if the higher wages in the public sector are more attractive, not to mention the capacity for the public sector to provide better pensions.

We need small and micro businesses at all stages of the supply chains in all sectors, and we lose them at our peril.

The Office for National Statistics (ONS) said the rate of unemployment was 5.2% in the three months to the end of December, the highest rate since the quarter to January 2021. This was in line with what economists had been expecting and was up from 5.1% in the three months to November.

Joblessness in the UK has steadily risen since 2022, and businesses have complained that tax rises by Rachel Reeves in her last two budgets have exacerbated this, with rises in national insurance contributions and the minimum wage causing particular issues.

In the three months to December, wages excluding bonuses in Great Britain increased by 4.2%, easing from 4.4% the previous month.

In the private sector, pay rose by 3.4%, the lowest level in five years, while wages in the public sector rose by 7.2%. Once adjusted for inflation, annual pay excluding bonuses rose by just 0.8% in October to December, the lowest rate since August 2023.

The number of people on company payrolls also continued to fall, down 134,000 on a year ago, and by 46,000 over the quarter. On a monthly basis, payrolls fell by 11,000 in January.

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