0:11

Welcome to this

0:11

latest FSB monthly round-up

0:14

podcast brought to you by the

0:14

Federation of Small Businesses

0:17

and the go to podcasts for news

0:17

tips and important information

0:21

for small businesses and the

0:21

self employed. This episode is

0:25

our December Small Business

0:25

Round-up, in which we'll take a

0:29

look at some of the important

0:29

issues hitting the headlines at

0:32

the moment, and which you need

0:32

to be aware of right now, as

0:35

small business owners this month

0:35

will be looking in particular at

0:40

the latest developments around

0:40

energy costs for small

0:43

businesses and some steps FSB is

0:43

taking to try to help ease the

0:47

pain of that. And we will also

0:47

unpick the recent autumn

0:51

statement to understand the

0:51

impact of the big announcements

0:54

on small businesses, as well as

0:54

what the government should be

0:57

doing to support small

0:57

businesses more in 2023. To

1:02

discuss those issues. I'm joined

1:02

by Paul Wilson, Policy Director

1:06

at FSB and Alan Soady, head of

1:06

Media and Communications. Thank

1:11

you both for joining. Paul,

1:11

starting with the ongoing issue

1:17

of energy costs, which seems

1:17

like it's, it's going to run for

1:21

some time, can you give us a

1:21

sense of how badly these energy

1:25

prices have been affecting small

1:25

businesses so far?

1:28

Sure. Absolutely.

1:28

And we know from FSB's quarterly

1:32

Confidence Survey, the Small

1:32

Business Index, that cost

1:35

pressures this year have been

1:35

more severe than any time we've

1:38

seen before in the last 10 years

1:38

of doing the SBI. Record numbers

1:42

of small businesses are

1:42

reporting cost increases record

1:45

numbers, saying those increases

1:45

have been significant, i.e. more

1:48

than 10% across the year, and

1:48

energy or utilities is the top

1:52

driver of these cost pressures

1:52

cited by 60% of small

1:56

businesses. Now, it is affecting

1:56

a majority, the energy price

2:00

increases are not affecting all

2:00

small businesses at the moment,

2:04

I'll explain why that is - 23%

2:04

of small businesses are in the

2:08

position where they agreed a

2:08

fixed contract before prices

2:11

started rising significantly a

2:11

year ago. And I guess due to

2:14

that combination of some good

2:14

risk management and a bit of

2:17

good luck as well, that 23% are

2:17

currently insulated from the

2:22

price rises until their fixed

2:22

contract ends. But for those who

2:25

have seen their fixed contracts

2:25

come to an end, the impact has

2:28

been jarring. A quarter have

2:28

seen their energy cost double. A

2:32

further 19% have seen their

2:32

energy costs triple or more as a

2:36

result of these price increases.

2:36

And of course, that means small

2:39

firms have to take a range of

2:39

difficult decisions in order to

2:43

try and deal with those. Around

2:43

half have raised their prices

2:46

reluctantly, because there's a

2:46

cost of living crisis at the

2:49

moment, and they know that

2:49

customers can't necessarily

2:51

afford big price increases. FSB

2:51

has been saying for months now

2:55

that you can't solve the cost of

2:55

living crisis without first

2:58

solving the cost of doing

2:58

business crisis. And I think

3:00

this is a classic example of how

3:00

those two things are linked. In

3:03

fact, 18% of small firms tell us

3:03

that they can't pass further

3:07

price increases on because

3:07

customers simply cannot afford

3:10

to pay, you know, take the

3:10

example of the laundrette that

3:13

realised they'd have to more

3:13

than double their prices, just

3:16

to cover their energy bills, or

3:16

the pizza restaurant that

3:18

realised they'd have to increase

3:18

their charges to £25 a pizza to

3:22

cover their costs. But of

3:22

course, they haven't done that

3:24

because they know their

3:24

customers simply couldn't afford

3:26

it. Other firms are taking

3:26

another decision. So around a

3:29

third of cutters scale back

3:29

investment plans, which of

3:32

course will affect their chances

3:32

of growing their business. And

3:35

we've heard about companies

3:35

protecting the decision to

3:37

import or as previously, they'd

3:37

have made stuff in the UK. So a

3:40

manufacturer told us that they

3:40

did used to make the plastics

3:44

that they used in their processes, but now they're going to have to import them from

3:46

abroad. So these are really

3:49

difficult decisions. And the

3:49

fact is that the price increases

3:52

that many firms have seen are

3:52

too severe to deal with. And

3:55

that's why FSB lobbied

3:55

government to introduce the

3:58

energy bill relief scheme, which

3:58

runs to the end of March 2023.

4:02

Yes some startling

4:02

statistics around how you know,

4:06

the numbers of firms that are going to have to pivot their strategies or indeed, that are

4:07

completely at risk as a result

4:11

of some of these pressures. And

4:11

a lot of the rhetoric, Paul, I

4:15

think has been about, you know,

4:15

winter, it's kind of getting us

4:18

up to and through winter in

4:18

terms of sort of government

4:21

support, but how important is it

4:21

for that energy to support from

4:26

the government to continue

4:26

beyond the winter period? And

4:29

what would you like that to look like?

4:30

Well, for many small firms, it's just absolutely vital that some form

4:32

of support continues beyond

4:35

March 2023. We asked small firms

4:35

what they would have to do if

4:38

the support were to run out in

4:38

March next year, this sort of

4:41

cliff edge type scenario, and

4:41

really starkly, 24% of small

4:44

businesses said they would need

4:44

to either close, downsize or

4:48

radically restructure if the

4:48

support ends and there's no

4:51

successor. And for some sectors

4:51

that goes even higher, so look

4:54

at accommodation and food, 42%

4:54

of small firms, so they'd have

4:57

to close, downsize or

4:57

restructure. That's the size of

5:00

the risk here, if government

5:00

doesn't get the decisions right

5:04

on the successor scheme. So what

5:04

we're asking for is some sort of

5:07

continuation of government

5:07

support beyond March 2023, at

5:10

least for the smallest firms.

5:10

And you might think: 'well, FSB,

5:13

you would say it's the smallest

5:13

firms who need it more'. But we

5:17

have good reasons for that.

5:17

Small firms are frankly, unable

5:20

to protect themselves against

5:20

the impact of these price

5:23

increases in the way that bigger

5:23

businesses can. Small firms tend

5:27

to have much lower cash

5:27

reserves, their ability to

5:29

invest in things like energy

5:29

efficiency measures is lesser,

5:32

and they have no ability to

5:32

negotiate with big energy

5:35

suppliers or indeed, hedge their

5:35

risk. So we think the government

5:39

did a good job with the design

5:39

of the energy bill relief

5:42

scheme. And FSB is proposing

5:42

they use a similar model for the

5:45

successor, even if it only

5:45

applies to smaller firms. And

5:48

the good thing about the Energy

5:48

Bill Relief Scheme, or EBRS is

5:52

that it's applied directly to

5:52

bills. So small business owners

5:55

don't need to do anything to

5:55

make sure that they benefit from

5:58

it. It's also quite well

5:58

designed from a taxpayer

6:01

perspective. And we know that

6:01

the government have to be

6:04

careful about how they spend

6:04

their money. But the way that

6:07

the scheme is designed, it means

6:07

that a reduction won't be

6:10

applied to a company's bill, if

6:10

they happen to be on one of

6:13

those longer term, fixed

6:13

contracts. That's a reasonable

6:16

price that I mentioned earlier.

6:16

So that's what we're calling for.

6:20

Yeah, that's the

6:20

call on government. And we talk

6:23

a lot on this podcast about what

6:23

we would like to see from the

6:26

government. But I understand FSB

6:26

has been writing to some of the

6:30

big energy companies as well

6:30

with your concerns about the

6:34

experiences as some of the small

6:34

businesses in the FSB network,

6:40

what what is it that you're

6:40

hoping to achieve with that?

6:43

Well, this comes back to that point that I mentioned about the imbalance of

6:44

power between small business

6:47

customers have very large energy

6:47

companies. And we're very

6:51

conscious of that. So we've

6:51

asked for a few things. And the

6:53

first is to explain how the

6:53

discounts are being applied on

6:57

customer's bills. The energy

6:57

bill relief scheme is a good

6:59

scheme, but it is also

6:59

complicated. So we've called on

7:02

energy companies to explain to

7:02

customers how discounts are

7:05

being applied to bills. And you

7:05

know, just looking at my

7:07

household energy bill, I've had

7:07

some pretty good comms from my

7:10

energy supplier as to how the

7:10

government discounts have been

7:12

applied, we want the same for

7:12

small business customers. Next,

7:16

it's fair to say that some

7:16

charges are not covered by the

7:19

government scheme. So things

7:19

like daily standing charges

7:23

aren't kept. But FSB is called

7:23

on suppliers not to increase

7:26

those charges, even though

7:26

technically they can, as it

7:29

would completely undermine the

7:29

purpose of the energy bill

7:32

relief scheme and add further

7:32

pressure to energy bills. And

7:36

lastly, even with the support of

7:36

the energy bill relief scheme,

7:39

we know that this winter is

7:39

going to be very tough for many

7:42

small businesses and indeed

7:42

households. What we don't want

7:45

to see is energy companies

7:45

making unreasonable demands of

7:48

small business customers. And

7:48

you know, what, what type of

7:51

thing am I talking about there?

7:51

We heard from a laundry business

7:54

who had a good credit rating and

7:54

who was nonetheless asked for a

7:56

£16,000 deposit by their energy

7:56

company that sort of request for

8:01

a huge upfront deposit risks

8:01

putting firms out of business

8:05

and undermines the good work

8:05

that the government's put in

8:08

with the support with Bill. So

8:08

the point of FSB writing to the

8:12

energy companies is to ensure

8:12

that they do their utmost to

8:15

support their small business

8:15

customers and give the small

8:18

business customers the best

8:18

possible chance of surviving the

8:21

winter. And also to let the

8:21

energy companies know that FSB

8:24

is watching as I'm sure

8:24

government and Ofgem are too.

8:27

Yes well, let's

8:27

hope that multi-pronged approach

8:31

has some some impact. Thanks

8:31

very much, Paul. That's really,

8:34

really good. Good insight into

8:34

the current situation around the

8:38

the ongoing energy challenges.

8:38

Alan, Hi, thanks for joining. I

8:42

also want to cover off the

8:42

fallout from last month's Autumn

8:46

Statement, if we can and also to

8:46

look forward to what comes next.

8:51

And what FSB would like to see

8:51

from government going forward.

8:53

Let's start with the big

8:53

takeaways. What were the big

8:57

announcements for for small

8:57

businesses in that statement?

9:00

Well, there was a

9:00

lot of stealthy tax rises in

9:03

there, a lot of talk of

9:03

thresholds being frozen, which

9:07

in effect actually means in real

9:07

terms, taxes going up for a lot

9:11

of small businesses. One good

9:11

thing that for me to pick out

9:15

here is that the planned rise in

9:15

National Insurance contributions

9:20

for employers, for self

9:20

employed, for employees, that

9:24

happened earlier this year, that

9:24

was reversed that was something

9:27

FSB had campaigned a lot on to

9:27

achieve that it had been

9:31

something that was announced at

9:31

the time that Liz Truss was

9:34

briefly Prime Minister and that

9:34

was one of the very few things

9:37

from her brief era, that

9:37

actually stayed when we got to

9:40

the Autumn Statement, so that

9:40

was good. However, there's

9:45

always a but isn't there with

9:45

budgets and Autumn Statements

9:47

and things. There was a freezing

9:47

of the threshold thresholds

9:52

again, for employer National

9:52

Insurance, and that, in effect

9:56

is a stealthy rise in what we

9:56

call the Jobs Tax, because it's

10:00

at a time of where wages are

10:00

going up. If you freeze the

10:03

point at which the tax on the

10:03

National Insurance tax kicks in,

10:07

through employers, then it means

10:07

that they're having to pay a

10:10

bigger proportion in tax for

10:10

their employees. There was a

10:14

saving grace that the employment

10:14

allowance was kept at its

10:17

current level that was something

10:17

hard fought for by FSB, first of

10:21

all, to get the employment allowance in the first place a few years ago, but then for it

10:23

to be increased along the way.

10:26

And we were very pleased that we

10:26

were listened to on that, and it

10:29

stays at £5,000. I do want to

10:29

touch on directors of limited

10:34

companies who are paid mainly

10:34

through dividends, this was not

10:37

a good, awesome statement for

10:37

them. Because unlike employer,

10:40

employers, self employed, they

10:40

were not taken out of the

10:45

increase in National Insurance

10:45

or rather the equivalent for

10:48

them, at least. And also there

10:48

was a cut in the allowances for

10:52

dividend taxation. That in

10:52

effect, again, is a tax rise for

10:57

them. And let's bear in mind

10:57

that this is the same group who,

11:00

during the earlier days of the

11:00

pandemic were left out and

11:03

excluded from direct financial

11:03

support from the government. So

11:07

I think they will, that group

11:07

would have been left feeling

11:10

pretty bitter by some of this in

11:10

that Autumn Statement. Quickly

11:13

on business rate, it was

11:13

actually reasonably good news,

11:16

but in the sense that there's

11:16

not going to be a massive of 10%

11:19

plus inflationary hike. The

11:19

revaluation that underpins what

11:24

your business rates actually

11:24

are, is going to go ahead next

11:27

year. But the winners from that

11:27

will be I know, this sounds like

11:30

I'm stating the obvious will be

11:30

those whose valuation goes down

11:34

and therefore their their rates

11:34

bill goes down. Obviously,

11:37

that's good news in itself. But

11:37

there's also been a change in

11:40

the way that's administered. So

11:40

that reduction will happen in

11:43

full from year one, whereas

11:43

previously, it came in

11:47

gradually, over the course of a

11:47

few years, there was also an

11:50

expansion of rates relief for

11:50

retail, hospitality, and

11:53

leisure. So good news for

11:53

businesses in in those sectors.

11:57

But then shall I shall I end,

11:57

this bid on another negative

11:59

there was the freezing of the

11:59

VAT threshold. Now, that is

12:03

another stealthy measure more

12:03

small businesses will be dragged

12:08

into VAT, or for others, it will

12:08

act as a deterrent to growth

12:11

already, we knew from our

12:11

research that nearly a quarter

12:14

of small firms and self employed

12:14

are held back by the VAT

12:17

threshold. And this really is an

12:17

anti-growth decision such as to

12:22

freeze that at a time when costs

12:22

and prices are going up.

12:26

You know, Thanks, Alan, you mentioned that sort of VAT threshold being a sort of

12:28

stealth move. Why is that so

12:32

significant? Have you got an example of that?

12:34

Yeah, I mean, if

12:34

you're below that threshold, and

12:38

particularly if you're just

12:38

below you, a lot of small

12:41

businesses do not want to get

12:41

dragged to profit, partly

12:44

because they then have to charge

12:44

that 20% tax and potentially put

12:47

their prices up make themselves

12:47

less competitive. There's also

12:51

both the admin and the costs

12:51

around administering being part

12:55

of VAT, we estimate it takes

12:55

about on average, about a week a

12:58

year to do the admin for that.

12:58

So let me give you a couple of

13:01

examples. And these are

13:01

absolutely real life examples of

13:05

FSB members facing this right

13:05

now; let's take the fish and

13:08

chip shop. That is at the moment

13:08

in terms of the amount that it's

13:12

taking, it stays below the VAT

13:12

threshold, but not usually much

13:17

below. In the course of a

13:17

typical year. Now their prices

13:20

like everyone else's for what

13:20

they have to buy for the

13:22

everything from the fish to the

13:22

energy it takes to cook it has

13:26

been going up. But if they pass

13:26

on those extra costs in the form

13:31

of higher prices to their

13:31

customers, that means their

13:34

turnover goes up a bit. And that

13:34

pushes them above the VAT

13:38

threshold, suddenly, they've got

13:38

to add another 20% onto the

13:42

price of a cod and chips that

13:42

makes them less competitive than

13:45

the fish and chip shop down the

13:45

road. And they've got all the

13:47

tax costs and admin that would

13:47

go along with that they're

13:50

dealing with that scenario right

13:50

now. I was also talking to one

13:53

of our members who runs a small

13:53

hotel in the Lake District and I

13:57

say how's it going? He said,

13:57

'Well we're shut at the minute'.

14:00

I said, 'Do you normally close

14:00

for the winter? Is it just you

14:02

know, out of season?' They said

14:02

no, no, you get a lot of

14:04

visitors to the Lake District

14:04

through through the winter. A

14:07

lot of people like going walking

14:07

in the hills when it's a bit you

14:09

know when the weather is colder

14:09

or they'd like to come and see

14:11

see the lakes in the snow and

14:11

the and the frost because it's

14:14

beautiful. But so far in this

14:14

financial year, he's already

14:20

taken enough in that brings him

14:20

close-ish to the VAT threshold.

14:24

He's taken 70 odd 1000. He's got

14:24

a few bookings for March. So

14:28

that's still going to be within

14:28

this financial year. He was

14:31

saying if he does any more this

14:31

because he's had to put the

14:35

costs up himself to cover his

14:35

own increasing costs. It's going

14:39

to push him over that VAT

14:39

threshold. So in other words, if

14:41

he stays open over the colder

14:41

months of the winter, he's got

14:45

all the costs and the hard work

14:45

of doing that. But in effects

14:49

that does it for absolutely

14:49

nothing because come April he's

14:52

then dragged into the VAT

14:52

threshold has to put his prices

14:55

up, might get fewer bookings as

14:55

a result next year, and also has

14:59

all that tax costs and admin to

14:59

do as well. So two real-life

15:02

examples there, where you can

15:02

see it's actually a deterrent

15:05

for a business to grow and take

15:05

more money.

15:08

Yeah, that's a really good example. Actually, we've talked there a bit about

15:10

the things that were announced.

15:14

What was FSB disappointed not to

15:14

see perhaps and what would you

15:18

like to see the government

15:18

prioritising in the next period?

15:22

Overall, there was a

15:22

lack of pro-growth, pro

15:26

enterprise strategy underpinning

15:26

this autumn statement. And of

15:29

course, there'd been a lot of

15:29

political turbulence, a lot of

15:32

economic turbulence leading up

15:32

to it. And the government had

15:35

wanted to steady the ship. But

15:35

what was missing was how to get

15:41

the growth in the future. In

15:41

terms of the policies, yes,

15:43

there were a few glimmers of

15:43

good news in there, but nowhere

15:45

near enough given the economic

15:45

situation that we're in. And

15:49

even worse than that there was

15:49

actually something in there that

15:53

was willfully potentially going

15:53

to stifle innovation and growth.

15:57

And that was basically gutting

15:57

the research and development tax

16:01

credit system for small

16:01

businesses, that potentially

16:04

could lead to 1000s of small

16:04

businesses that are R&D heavy,

16:08

from no longer existing. And

16:08

part of the argument for that

16:13

was, oh, well, some of the

16:13

people claiming these R&D tax

16:17

credits is fraudulent. Now, our

16:17

response to that would be if the

16:22

system is not robust enough, and

16:22

the government is not capable of

16:27

policing its own system. Is it

16:27

really fair to penalise the

16:31

majority by getting rid of it

16:31

completely? And taking a

16:34

sledgehammer to it? Surely the

16:34

answer is to address the

16:37

problems that allow any fraud to

16:37

happen. So the vast majority,

16:41

who actually have benefited from

16:41

this, been using this in their

16:45

businesses been using it to

16:45

drive growth not only in their

16:47

business, but in the economy as

16:47

well, and driving innovation, to

16:51

just take that all away at a

16:51

time when surely innovation and

16:54

growth is needed most.

16:57

Yeah, brilliant. Thank you. And look, you know, while I have you here, it would

16:58

be remiss of me not to ask you,

17:02

as we move towards a new year to

17:02

highlight one or two things that

17:06

you think are going to be

17:06

particularly important for small

17:09

businesses going into 2023, and

17:09

that you think might dominate

17:14

the early part of the year.

17:16

Well, unfortunately,

17:16

I think this cost of doing

17:18

business crisis is going to be

17:18

the dominant thing. Still, it

17:22

shows no signs of going away.

17:22

And that's why it's very

17:25

important that the government

17:25

when it comes to the budget in

17:28

the spring, take steps to

17:28

address that and to get growth

17:31

going in the economy. And Paul

17:31

talks about the the energy

17:35

situation again, that is not

17:35

going away. Even you know

17:38

longer, longer term, there are

17:38

no signs of energy prices likely

17:41

to come down anytime soon to

17:41

anything like what they weren't

17:45

before, they will still be

17:45

unaffordable. I think also,

17:48

access to finance is looking

17:48

like it is going to be a growing

17:51

issue or at least access to

17:51

affordable finance with interest

17:55

rates going up. And with firms,

17:55

you know, more and more of them

17:58

having to turn to finance just

17:58

for cash flow. Just just to keep

18:02

the finances going day to day, I

18:02

think that is going to be a

18:05

focus, we are seeing an increase

18:05

in late payments. In some cases,

18:09

bigger businesses paying their

18:09

smaller suppliers late again, as

18:12

belts are being tightened. And

18:12

the financial squeeze is felt by

18:16

businesses big and small, there

18:16

will be a temptation by some of

18:19

the bigger businesses to hold

18:19

back payments even more so and

18:23

that could become an even bigger

18:23

problem unless it's addressed.

18:26

That's why we're saying to the

18:26

government, this is something

18:30

that actually would not cost the

18:30

taxpayer anything but would be

18:33

pro growth for you to address to

18:33

crack down on that. The strikes

18:37

have been yet another thing

18:37

thrown at small businesses,

18:40

particularly recently, things

18:40

like the the postal strike with

18:43

Royal Mail, rail strikes have

18:43

been hitting certain kinds of

18:47

businesses from those in online

18:47

retail, those whose supplies are

18:50

being interrupted through

18:50

disruptions to deliveries. And

18:54

then particularly a hospitality,

18:54

for example, with the rail

18:57

strikes in that run up to

18:57

Christmas, really hoping to have

19:00

a good and lucrative period,

19:00

particularly with Christmas

19:03

parties and so on. And yet when

19:03

the trains are on strike, in

19:07

some cases, some of those

19:07

Christmas parties are being

19:10

cancelled. But also, if you look

19:10

within small business employers

19:13

themselves, there have been

19:13

difficulties throughout much of

19:17

this year with recruitment and

19:17

retention with staff shortages

19:20

with skill shortages. Again,

19:20

that looks likely to continue

19:23

and there will be a challenge I

19:23

think for a lot of smaller

19:27

employers to perhaps find other

19:27

ways other than wage increases

19:30

or bigger wage increases other

19:30

ways of of improving recruitment

19:34

and retention of staff into

19:34

their businesses through perhaps

19:37

non wage benefits from cycle to

19:37

work schemes to discounted gym

19:41

memberships, that kind of thing,

19:41

for example, that often in the

19:44

past with something only bigger

19:44

businesses were able to

19:47

negotiate an offer. There are

19:47

ways now that smaller businesses

19:51

can source that without having

19:51

to do it all individually,

19:54

themselves and actually at FSB,

19:54

that was something we recognised

19:58

a little while ago and have

19:58

recently introduced something

20:01

that our members can access if

20:01

they if they want to go down

20:04

that route if they think it

20:04

would help to be a benefit for

20:07

the recruitment and retention of

20:07

staff. So I think that is

20:11

another challenge that is still

20:11

going to be there as we go into 2023.

20:15

Yeah, brilliant,

20:15

lots of challenges, but also

20:18

plenty of solutions, ideas and

20:18

lobbying going on in the

20:21

background, Paul and Alan, thank

20:21

you so much for for taking us

20:25

through the key Small Business

20:25

announcements in the headlines

20:29

right now as part of our monthly

20:29

small business round up podcast

20:33

series. That was really good.

20:33

Thank you also to our audience

20:37

for listening to this episode.

20:37

While I have your attention, I

20:41

would just like to remind you

20:41

that you can subscribe to the

20:44

FSB podcast to receive regular

20:44

updates and guidance on the big

20:48

issues affecting small

20:48

businesses. And do please also

20:51

remember that you can find a

20:51

whole host of additional

20:55

webinars, podcasts and other

20:55

content at the first voice

20:58

website at firstvoice.fsb.org.uk

20:58

and on the FSB website

21:01

fsb.org.uk Many thanks for listening.