July 2022 small business roundup

  • 06 Jul 2022
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The rising cost of doing business and small business regulation: We look at what can be done to ease the pressure of the rising costs of doing business and the latest research that has looked at the impact of Covid regulations on small businesses - and what the FSB is calling for in terms of future responses to a crisis.


Dr Paul Richter

Senior Lecturer, Innovation and Entrepreneurship
Newcastle University Business School

Matt Dickinson

FSB Deputy Head of
Media & Communications

Full episode transcript: 

Jon Watkins Welcome to the latest First Voice Monthly Round-up podcast, brought to you by First Voice magazine, the official flagship magazine of the Federation of Small Businesses, and the go-to podcast for news, tips and important information for small businesses and self employed. This episode is our July Small Business Round-up in which we will take a look at some of the important issues hitting the headlines at the moment, and what you need to be aware of right now as small business owners. In particular, this month, we're looking at two major issues. The first is the continued rise in the cost of doing business and the latest in terms of what can be done to ease the pressure on you. And the second topic is a piece of research that has looked at the impact of Covid regulations on small businesses, and what FSB is calling for in terms of future responses to crises. To help us look at those issues. I'm pleased to say I'm joined by two guests. They are Matt Dickinson, FSB, Deputy Head of Media and Communications, who's going to talk to us about the latest issues relating to the rising cost of doing business. And Dr. Paul Richter, Senior Lecturer, Innovation and Enterprise at Newcastle University, who has been leading the research for a joint report between FSB, Newcastle University and Birmingham University on how small businesses experienced regulations in a crisis and the lessons that can be learnt from that. Thank you both for joining. Okay, Matt, I'll start with you. If you don't mind, we've heard quite a lot now about this kind of kind of rising cost of doing business. And we've spoken about it a little bit on this podcast, in fact, what's the latest on this? And what are the specific costs that are really hitting small businesses right now?

Matt Dickinson Well, unfortunately it's, if I'm honest, less about the specifics and more about the fact that operating costs are rising, generally across the piece. So I mean, fuel, the cost is way up, utility bills, people employment costs are growing, because the labour market is tight, which is forcing up wages. But also because of government changes to taxation in that space, in terms of debt, interest rates have started increasing for the first time in a long while, and that, that affects any loan that doesn't have a fixed rate attached to it. On the tax side, I mean, the taxation burden is now as a share of GDP nationally, the highest it's been since the 40s. And at the same time, the pound is becoming weaker, a few respected economists are now potentially forecasting another recession, which has impacted the pound. So anyone who's who's importing particularly is going to feel the effects of that. And on top of that, we've got some of these wider issues in the economy, particularly around travel disruption, we've had strikes across the tube network, across National Rail, in recent weeks, and also a lot of issues at our airports. And there's a number of causes for that. So unfortunately, it's, it's a bit across the piece at the moment. I mean, if you look at the ONS's latest figures on this, producer price inflation. So things like food inputs for businesses, fuel, chemicals, computing, equipment, machinery, all that really important day to day stuff, prices are up just over 22% Over the past year, which is the highest level on record. But in terms of passing that cost on, consumer prices are up just over 9%. So there's an awful lot there that small businesses are trying to absorb in terms of their operating costs versus what they're charging to customers. But there is only so much they can do at this point.

Jon Watkins Yes. And you mentioned a few specifics, their tax rise and inflation, rising consumer prices, what's behind these rising costs? Is it a combination of factors landing all at once? And how long might this go on for?

Matt Dickinson Yes, I think a combination of factors is right. I mean, we're just in a very unusual situation where we've just come out of lockdowns and feeling the effects of long term effects of the disruption that cause particularly in terms of supply chains and the labour market. And of course, very sadly, we now have a European conflict, which is impacting a lot of imports, but particularly on the food side and the fuel side. So it's really unusual and unfortunate set of circumstances in terms of how long the impacts will go on. I mean, the Bank of England is an example of an organisation that's, that's more on the kind of pessimistic side in terms of their forecasts for inflation and growth. But it's really, it's really hard to say, I mean, a lot will depend on where the pandemic and conflict situation goes next. So it's hard to say, but it is it's important to say as well, that, you know, we've got a huge amount of innovation and change going on in the business world, lots of new businesses starting up over lockdown who who are thriving. So it's not all doom and gloom at this point.

Jon Watkins Yeah, totally agree for for those that are impacted, though, what we hear this all the time, don't mean the media, it's impacting small businesses. But we'd like to just understand a bit about what we mean by that, you know, what's the anecdotal evidence that you're hearing in the market about how this is actually affecting small businesses, their owners and their families?

Matt Dickinson Again, it's, it's across the piece, really, I mean, there are those businesses that you would you probably expect to be most effective, particularly on the leisure and hospitality side, I mean, new figures out today, showing that we have fewer than 40,000 pubs across England and Wales, at the moment, around 7,000 have closed in kind of the past couple of years. So I mean, that's an example where you have a business with kind of all those overheads to worry about in terms of property, in terms of inputs, in terms of staff. But I mean, in terms of even this week, we were hearing from a windows specialists to who builds conservatories, who maintains windows for, you know, kind of domestic and commercial properties, they've had to write to their customers for I think, second or third time now to say, I'm really sorry about operating costs being what they are, I need to pass on 7-8% In terms of what I'm charging to you, because I just I just have no choice, otherwise, the business can't function. Even more kind of worrying. I was speaking to a member of ours who works in the refrigeration industry, so specialist cooling equipment on the commercial side. And they were essentially saying all my costs are up in terms of everything we've just been discussing. But passing on costs just isn't really an option. So either I try and weather it and absorb it all myself, or I'm just going to have to close, and that is for businesses, as I say where there's where there's just not really that flexibility on the pricing. They're facing some really tough choices.

Jon Watkins Yes, absolutely. And not all businesses are in a position to to pass costs on, are they? Are there any steps that FSB is advising small businesses can take to manage their way through some of this?

Matt Dickinson I mean, it's all the usual things, really, I think with a lot of those elements. Shopping around is important, you know, on the utility side, on the fuel side, in terms of inputs, looking really closely at supply chains and seeing if there's anything more that can be done in terms of alternative suppliers, or renegotiating with the suppliers you already have. I mean, on the the tech side, the finance side, just having a really close look and seeking professional support with that, if you think that would be useful in terms of bringing down outgoings there. And also from from us in the Westminster team, we definitely say, you know, we have campaigned hard for support in terms of, of late, the business rates side in terms of breaks there. The employment cost side, particularly the employment allowance is a really important break that you can access if you're a business of a certain size. So definitely Google government business support, you'll see they they actually now have launched a helpline that you can call. And they can point you in the direction of government initiatives that potentially can give you a bit more breathing space, but also speak to your local authorities, speak to your local enterprise partnership, make sure you're plugged into your federation of small businesses network locally, because it could well be that there's help out there that you're not necessarily aware of at this stage.

Jon Watkins Yes. And you mentioned lobbying the government there and I know, FSB is always busy in the background doing that. What else would you like to see from the government in terms of supporting small businesses through this?

Matt Dickinson I mean, what we're really saying is there's there's a huge amount they could be doing, particularly around those taxation costs that are hitting businesses regardless of profitability. So business rates is perhaps the best example of that, but also around this National Insurance increase. If that's happening for employers, yes, we've got the employment allowance bit is there anything more that can be done to reduce overheads there on the utility side, there's been direct support for consumers in terms of, you know, literally cash and accounts to help those costs. And we haven't seen that on the business side. And we're saying that's something that could be done at local authority level via the rate system as it's been done for consumers by the council tax system. on the trade side, you know, we're still campaigning for a replacement for the SME Brexit Support Fund, which opened and closed very quickly, some time ago. And, you know, more widely, there's, there's the VAT side, there's the fuel duty side, there's lots of different aspects that the government could be considering when we're looking to bring down costs for business, which are ultimately the cost that are passed on to consumers, and ultimately, potentially damaged demand in the economy and our economic recovery from lockdowns and all the other challenges that are out there at the moment.

Jon Watkins Yes, thanks, Matt. And you mentioned the value and importance of the FSB network. Presumably, there's lots of material and support on the FSB site is there?

Matt Dickinson Yes, absolutely, I think first port of call on this; there's a really excellent, long read on the first voice homepage at the moment, looking at costs and the different steps you can take to potentially bring those down and give yourself some breathing room. And definitely speak directly to us explore all your member services through your FSB membership. And again, do be alert to support from government at national and local level as well.

Jon Watkins That's brilliant. Thanks very much, Matt. That's really, really insightful and really useful. Thank you, Paul. Thanks. Also to you for joining us now. You've been leading on some research around the impact of COVID regulation on small businesses. Can you tell us exactly what that research is all about and why it was important?

Paul Richter Sure. So the research Jon is, it's about making sense, really, of how small businesses around the UK; so the project looked at all the nations of the UK how they managed to understand and act on, you know, the significant changes to the regulatory environment that happened when the pandemic hit. And you know, how they can move out of the pandemic in as good shape as possible. We took sort of more of what we call a kind of granular approach, then often research in this area does. So rather than just asking about kind of broad categories of regulation, you know, typically it's employment or health and safety, which is quite useful, but we thought we'd go for the kind of granular level of 21 specific regulations that businesses might have engaged with when the pandemic hit. So, you know, social distancing, or use of PPE and so on. Because that's really how, how regulations are experienced at that kind of individual level. So we did a survey, we've got around 1000 businesses, most of which were FSB members. And then we also followed up with about 25 in-depth interviews with people who'd carried out the survey.

Jon Watkins Brilliant, and what were the core findings?

Paul Richter Well, there's lots! But we haven't got all day, so I'll try and be as, as kind of concise as I can. And as you would imagine, with a project like this with 1000, odd voices, there's going to be a range. You know, in general, of course, many business owners faced severe difficulties, particularly the beginning, you know, March 2020, locked down, one happened. And the effect was massive on many small businesses simply knowing what they do the following day. So that was definitely captured. At the same time, in some senses to bring a bit of balance. We also heard stories of innovation, and resilience among some small businesses, those who are able to kind of adapt their business, not necessarily overnight, some work somewhere in that position. But others it took weeks and maybe months to kind of have the space to rethink what they were doing and how they were doing it. And to for the longer term, you know, change how they were doing business. So there was there was that kind of balance in terms of specific examples of, you know, the kind of compliance actions that businesses were taking. So as you can imagine, public health related regulations kind of dominated the experience of your typical small business, but those in health and education sectors, hospitality and so on, they quite clearly had to kind of manage and navigate far more than, let's say a professional or support service type bit. snus. So kind of specific regulations that were difficult to comply with social distancing. Hygiene and cleaning practices use of PPE, that sort of thing was, was commonly talked about. About two thirds of businesses in hospitality, they found they had to take considerable action, we had kind of different levels of action taken around making premises COVID secure. And the considerable action kind of responses were, for those in hospitality around two thirds, as I say, in terms of other kinds of, well, as well as asking about sort of difficult regulations to comply with, we also wanted to get a sense of which were beneficial, because of course, some of the measures taken by government were designed to support businesses and furlough, I guess, is the classic example of that. So around 55% of our survey sample, didn't engage with the furlough scheme. But what we found quite interesting is around 20%, said, on the one hand, it was one of the most beneficial regulations they they had to comply with. But at the same time, it was one of the most difficult. And this was particularly their experience at the beginning of the pandemic, when the furlough rules were not very flexible. You know, we heard stories about there was an ecologist, who told us that, you know, you have to kind of make the choice between keeping staff on and paying them when you weren't too sure what was going to happen in terms of was there going to be enough work for them, or you're left without key members of staff to fulfil existing contract contracts with, with clients who were kind of on the books when the pandemic hit. So that did improve. And we heard businesses say that as time went on, and the the rules around furlough were more flexible, that that kind of thing. was easier to handle?

Jon Watkins Yeah, some really good, granular insights into the impact on businesses overall, what does it tell us about the impact that regulation can have on small businesses?

Paul Richter Well, again, it is, it is a mixed picture, I'll give you a few kind of examples of the ways in which in the report that we've written with FSB sort of kind of breaks this down. So for example, we were looking at small businesses in particular, so those up to 50 employees, and the number of employees a business had, the experience of this period really did change. So if you're a no-employee business, of which there are many, as we all know, you engage with about three, let's say off the 21 specific regulations, we asked businesses to, respond to, if you had 10 or more you had about the employees rather, you had like nine of these regulations. So you know, a considerable difference just in the amount of kind of regulatory response that was required. sectors have already talked about, you know, certain sectors were hit harder than others. What was what was quite clear, and, you know, it makes sense now that we're sort of two years down the road is those businesses who had a kind of pre existing digital capacity, and were more kind of able to pivot in terms of working online, they, some of them did really well. Others who weren't quite so flexible and hadn't invested in their digital capacity pre lockdown, you know, had a had a much tougher time. So that was a kind of key hinge point for, for whether or not you fared reasonably well, with this regulatory kind of onslaught or not. And also type of premises, you know, if you had customers coming into your premises, the amount of regulations you have to consider and the adjustments you had to make, were far more than those who were home based, for example. And there was also a devolved nation type point, as well, you know, businesses who were operating in a number of devolved nations or not in England, they kind of had to, you know, keep up with changes, not only from the UK Parliament, but also their their national parliaments. And sometimes these regulatory messages, as as you know, we've heard through, through the media didn't always weren't always seamless. So that added another kind of dimension of the way that different firms were, were impacted differently.

Jon Watkins Yeah, and the report that you've produced off the back of the research sets out a number of lessons and learnings for governments record recommendations for them. Can you just summarise a couple of the key ones of those?

Paul Richter Yeah, sure. So I mean, one of the recommendations were making is that governments and this is all governments, you know, this is this is Scotland and Wales, Northern Ireland and England, they should evaluate the impact of the actions taken during the pandemic in respect of regulation and draw up, a contingency plan so that we're better informed and fitter, as regulating bodies going forward. Government and regulators we're arguing should also pursue a kind of culture of regulation that emphasises proportionate and appropriately communicated regulation. This is a kind of general point. And it it links with that point, I'm sure, has been made many times in these sorts of conversations about how small businesses need to be kind of thought of, especially because they simply haven't got the resources or the capacity to one understand what regulations are affecting them and then to act on them as as appropriate. Another one we're making is that when governments change or introduce new regulations, they've got to draw clear distinctions between the actions that a business must take to comply, and the steps that a business might choose to take. And that's one of the findings I didn't mention earlier, John, and that is that about just under a quarter of the entire sample said that they were completely unclear during the pandemic as to which of the regulations they had to comply with by law, and which was simply guidance in terms of best practice. And that, you know, that's a considerable number of businesses out there, if you extrapolate from from the 250, or that said that to us. Have I got time for a couple more?

Jon Watkins You definitely have, yep.

Paul Richter Governments and regulators should be publishing illustrative examples of compliance when they're regulating small businesses. You know, probably this is this is not a kind of new idea. But it's certainly one that came through our research that the more that regulators can do to kind of give an example a kind of realistic scenario that a business might find itself in, so that it can measure itself against what is compliance, rather than having to do a lot of that kind of thinking themselves, moving from abstract regulations to what it means in practice. So you know, that the more that regulators can do to illustrate that to kind of scenario eyes, that then then that will be helpful. We're also asking for a grace period, unless we're talking about safety, critical regulations, there should be a grace period after a regulatory changed before enforcement action will be taken. And maybe I could just make one more point about about those regulations that are meant to support small businesses, as I mentioned earlier, in the case of furlough, it wasn't flexible at first; it did become more flexible. So we're asking that any future regulations that are looking to support small businesses in this kind of way that they should, from the start, be as flexible as as they possibly can be. And that things like any future income support scheme, which ran alongside furlough, you know, doesn't leave directors who were drawing income from dividends adrift at a time when they also needed financial support?

Jon Watkins No, brilliant. And I presume that that sort of last point around thinking about how well equipped small businesses are to take on regulation is really important, isn't it? Because, you know, some are going to be in a better position than others to handle that.

Paul Richter Yeah, they will be. And, you know, it depends how long people have been in business, often, how deep and wide their networks are, whether that's informal or formal, in terms of advisors, and so on. And as, as Matt mentioned earlier, you know, that there has been a lot of entrepreneurial you know, people starting up new businesses in the last period, as well. And when you start up a new business in the first few years, all of this stuff is new. So the more that governments and regulators can help, because most businesses want to do the right thing. They want to be compliant, and they don't want to spend too much of their time having to comply. So the, you know, the more that regulators can do to make it as easy and clear as possible about what compliance means that I think everyone wins.

Jon Watkins Yeah, that's a great message. Thanks, Paul. And if you would like to read more on that research and to download the full findings of the report, then you can do so by going to the FSB website and search for navigating the COVID-19 regulatory landscape. Thank you, Paul. Matt, just before we go, are there one or two big issues coming up over the next few weeks that our audience should be keeping an eye out for?

Matt Dickinson I mean, the main things that spring to mind are actually this week, the government is changing the thresholds for Income Tax and National Insurance. So important to keep an eye out for that. I mean, we'll be pushing both for more support on the employment cost side, and also doing what we can to raise awareness of the employment allowance, which, again, as I say, is a really important break that you can receive as a small business if you employ people, but it's not something you'll get automatically. So it's important to seek that out. The other one that springs to mind is, in terms of the economy more widely, there will be another change to the consumer energy price cap in October, and people are forecasting that could take people's energy bills up by quite a significant amount. So it could be, I mean, just generally, a bit of a pressure point for the economy. Come autumn in terms of belt tightening. And, you know, people looking ahead to Christmas, maybe doing some more saving off the back of the summer. But as I say, lots of hard work going on. We're still campaigning on the policy side. So hopefully, we have a bit of a turnaround in terms of the economic outlook by then.

Jon Watkins Brilliant. That's really useful. Thank you, Matt. And thank you all. So Paul, for your your contribution. And thanks also to our audience for listening to this episode of the Small Business monthly roundup podcast. While I have your attention, I would just like to remind you that you can subscribe to the First Voice podcasts to receive regular updates and guidance on the big issues affecting small businesses and do please also remember that you can find a whole host of additional webinars, podcasts and other content on the first voice website at firstvoice.fsb.org.uk Many thanks for listening.

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