By Max Clarke
FSB, Federation of Small Businesses, Chairman comments on economic and job prospects for the UK in 2011.
2010 was a year of change and upheaval. We witnessed a shift in politics with the formation of the first Coalition Government since the 1940s. Leaders and personalities came and went and we started the difficult process of facing up to the true extent of the financial crisis.
The country has moved out of recession, but for the vast majority of small businesses entering 2011, economic recovery is still fragile.
The past few weeks have left small firms feeling the freezing winter weather more keenly than most, coming as it has at the end of a year in which confidence levels and business prospects plummeted even further.
Unfortunately, 2011 does not look any easier. With the increase in VAT to 20 per cent, record increases in fuel and energy prices and public sector cuts starting to bite, business prospects for the year ahead are looking bleak.
However, the New Year is still unchartered territory and so offers the five million small firms a fresh start to take action into their own hands. The FSB believes that with the right policies and a lot of hard work, there is actually good reason to be optimistic about 2011 — the year in which we can turn things around.
The Coalition Government has had to make some difficult decisions to begin to steer a steady course back to recovery. And as a result we have seen severe cuts being made to help tackle the public sector deficit.
Our research has shown that three quarters of small businesses thought public spending should be cut to tackle the public deficit, and six in 10 said they were more willing to accept cuts in public spending because of the size of the public sector deficit.
But, as we have heard the Government say time and again, spending cuts can only be half of the solution to the problems we face. 2011 must not be remembered for public sector cuts and a jobless recovery, but for a Small Business Programme for Growth.
Job creation is key in kick-starting meaningful economic growth. Over the last decade small firms have been responsible for more than 80 per cent of new jobs in the private sector. And they will do this again — but only if the conditions are right. FSB research worryingly shows that small businesses plan to decrease their workforce early in 2011. But if the Government steps up, this trend could be reversed.
The Coalition Government has made a start by introducing the National Insurance Contributions Holiday for new firms, but this is only scratching the surface. This scheme must be extended across the country to existing firms with up to four members of staff.
This might sound expensive, but the FSB estimates that for every three jobs created, over £10,000 would be generated for the Treasury. If 60,000 jobs were created, it would generate £350 million for the Treasury, as opposed to £900 million being paid out in benefits for the same number of jobseekers.
Job creation also needs to be more attractive for small business owners. 2011 will see the introduction of a raft of new legislation, including the Agency Workers Directive and the scrapping of the default retirement age.
We know that small firms are put off from taking on new staff because of the ever changing employment laws that they simply cannot keep up with. So the Government must hold off on putting any employment laws in place in 2011 so that they can hire new staff.
The most worrying part of current unemployment levels is the record numbers of young people without work - now standing at 943,000. During 2010 the FSB aided thousands of graduate internship placements in small businesses - with some leading to full time employment. The Government must do more help small firms take on interns and apprentices to provide that crucial bridge into full time work.
But economic growth is not just about job creation, and there is more the Government can do to get the conditions right for small firms to grow and flourish in 2011. It is, after all, the small business sector that will strengthen the recovery.
Increasing VAT to 20 per cent will hit small businesses hard. So the FSB believes the Government should raise the threshold at which small firms start paying VAT to £90,000, saving up to £162 million per year from the reduction in red tape. This would help to provide small firms with much needed cash-flow, allowing them to invest back into the business through lower prices or taking on more staff.
We also believe that the Government should consider targeted VAT cuts to stimulate growth. When the Belgian Government cut VAT on construction it saw an increase both in turnover and employment. The French economy benefited from the creation of some 53,000 new jobs in construction and seven per cent growth in turnover to the tune of €2 billion. In Italy 35,000 enterprises emerged from the informal economy and started paying VAT for the first time. It is time that we do the same in the UK.
The Government has also hailed exporting as a key driver for growth. And while the FSB agrees, our research shows that businesses are deterred from exporting by unnecessary red tape and bureaucracy. This should be tackled with more effective and targeted support. In fact, businesses have said that this would be at least as beneficial as tax breaks and added private sector finance.
Small businesses have a strong track record for delivering economic growth. They employ more people than any other part of the economy, they are the innovators of the UK and they keep the proceeds of their endeavours within their local community.
Success in 2011 will hinge on the Government's willingness to ease off on untimely employment laws, and its ability to harness the full potential of a small business community that just wants to grow its way back to recovery.
2011 is going to be tough for everybody, full of more change and uncertainty. But that does not mean we must all be downbeat — small businesses are the sector to aid recovery and we will step up. But so must the Government.