The Federation of Small Business (FSB) reports a decline in small business confidence during the last quarter of 2023, underlining the fragility of economic recovery. According to FSB’s Small Business Index (SBI), the overall confidence fell to -15 points, down from -8 points in the previous quarter. 

“Small firms are ever the economy’s canary in the coal mine, more exposed to shifts in consumer behaviour and changing circumstances due to their lower levels of reserves to fall back on,” said Tina McKenzie, FSB’s policy chair. 

“With many fighting hard to keep going amid challenging circumstances, their ingenuity, grit, and tenacity are being tested to the limit.”

The report was conducted in partnership with Google and also highlighted a variety of challenges facing small businesses.The statistics are from FSB’s Small Business Index (SBI) Q4 2023 survey, which surveyed 756 small business owners and sole traders between 13 December 2023 and 2 January 2024.

The domestic economy remained the most significant perceived barrier to growth (61.8%), followed by consumer demand (30.7%) and rising labour costs (27.3%). 

Late payments continued to be a persistent issue for two in three small businesses, with a notable increase in those reporting worsening late payment problems from Q3 to Q4.

On the positive side of the report, the information and communication segment reversed its Q3 negativity to a robust +24.4 points in Q4.

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Revenues for small firms were mostly flat in Q4, with one-third (33.8%) experiencing an increase and 39.8% reporting a decrease. This marks the seventh consecutive quarter of negative net balance for revenue growth, according to the FSB.

Looking ahead, nearly equal proportions of small firms expect revenue growth (31.6%) and decrease (32.0%) in Q1 2024, indicating a more uncertain economic landscape compared to the previous quarter. The proportion of small businesses anticipating growth in the coming year decreased slightly from 49.6% in Q3 to 48.2% in Q4.

“The lack of optimism for revenue growth in the first three months of 2024 points to trouble ahead,” continued McKenzie.

“The figures on late payment show why it was so important for the Chancellor to call attention to the issue in the Autumn Statement speech. It’s obviously far too early for his words to have had an impact yet, but we look forward to more progress in getting money to small firms in a timely fashion.”

The FSB urged the government to consider raising the VAT threshold to at least £100,000 to alleviate financial pressures on small firms. As well as introduce policies such as the Single Trade Window for small firms to collect the data they need to provide to export or import. 

“The ‘de minimis’ customs duty threshold should also be increased to £1,000, to relieve margin pressure, while international visitors to the UK should be encouraged to splash out via the reintroduction of tax-free shopping,” said McKenzie.