By Michiel Willems
In the midst of political uncertainty andahead of the Autumn Statement, a quarter of SMEs believe the UK economy has been damaged irreversibly by Brexit and Covid-19 – with an astonishing 64 per cent of business owners stating they are worried their businesses won’t survive the next 12 months.
The fresh data 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 and just under half 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 SMEs believe there is a much greater chance of their business surviving now that Sunak is Prime Minister, compared to just 7 per cent of accountants, according to the research from software companyFreeAgent.
“The research paints a fairly bleak picture for the UK economy from the perspective of both accountants and SME owners,” Roan Lavery, CEO of FreeAgent, said.
“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 feel their business will fail in a year’s time should be the wake up call our policy makers need to hear.”
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
When this survey was first run in mid October, when Liz Truss was Prime Minister, a total of 28 per cent of accountants and small business owners believed economic pressures would ease in 3-5 years.
This has now increased to 38 per cent 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 now believing that economic pressures will take 3-5 years to ease. This is up from 38 per cent when Liz Truss was in office.
With this in mind, the findings suggest that some small business owners have more optimism in Sunak’s economic plan, with 28% believing that economic pressures will ease in 1-2 years, up from 22 per cent under Liz Truss’ leadership.
Economic strain
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 per cent) of accountants and 22 per cent of SMEs say they would use any future tax cuts announced by the government just to stay afloat.
“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,” Julia Kermode, Founder of IWORK said.”
“Small businesses and independent workers hold the key to the economic recovery.”
Almost 2 in 5 (37 per cent) 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 per cent of business owners are worried they can only survive the next 12 months, while just 16 per cent of business owners think they’ll remain open indefinitely.
Almost 1 in 3 accountants think their practice will only survive for the next year, with 10 per cent only hoping to remain solvent for six months.
Yogesh Dhanak, Senior Technical Advisory Manager at ACCA said that “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.”
“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.”
Brexit and Covid
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 among 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 per cent of accountants have implemented hiring freezes, almost a quarter (24 per cent) of SMEs have reduced employee benefits as a result of the cost of living crisis, and 25 per cent have halted training programmes.
However, only 12 per cent 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 (23 per cent) than cut spend on technology (11 per cent).
Differing views
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 per cent), introduce new government loans specifically for energy bills (37 per cent) and to implement a windfall tax on energy/fuel companies (33 per cent).
Accountants, on the other hand, agree that a windfall tax (43 per cent) would be the most useful thing for the government to introduce, alongside expanding the energy cap (41 per cent) and introducing government-driven discounts on bills (34 per cent).
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 per cent) 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 per cent of those polled citing this as the biggest issue around MTD.
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