Partner Article

Good news as economic uncertainty weighs on SMEs

“Expectations that the economy will improve over the next twelve months are substantially down from previous highs of 80% in the last quarter. Confidence fell 11 points as respondents reacted to on-going global economic instability and two successive statements from George Osborne which were less than friendly to SMEs,” says Lee Blackshaw, Head of Private Client Tax Services, at Smith & Williamson Manchester, the accountancy, tax and investment management group.

“Optimism, among respondents, for their own prospects over the next 12 months declined by 8 points to 74% and there is little support for an interest rate rise. However, 24% of respondents recognised that business confidence is being adversely affected by the Bank of England’s decision to maintain interest rates at historically low levels.”

Overall, The Smith & Williamson Enterprise Index remained strong, up one point, at 115.4. The negativity surrounding the economy, and business prospects, over the next twelve months was offset by the belief in a growing talent pool. Over 64% of respondents planned to increase headcount in the next quarter with 50% believing the employment pool to be adequately trained, both reaching highs not seen since the end of 2013.

“Uncertainty over UK interest rates, economic troubles in China, a potential Brexit and upcoming US political instability will continue to trouble financial markets throughout 2016 and so this declining confidence could be a sign of things to come. With optimism surrounding recruitment normally reaching its peak at the start of the calendar year, it will be fascinating to see whether the Enterprise Index can maintain its strong reading if this early year hopefulness recedes,” says Lee Blackshaw.

Government changes

George Osborne announced major changes in the latter half of 2015 which will adversely impact many entrepreneurs and their businesses. In the Summer Budget he announced changes to the taxation of dividends and in his Autumn Statement he put forward his plan for quarterly tax reporting by 2020.

Following a ten point drop in the last quarter, respondents continued to react with a further four point decline in the belief that current government policy is supportive of private enterprise. In particular, 59% believed that the increase in the level of taxation on dividends will negatively affect SME business growth.

“Essentially, these changes mean that businesses could end up bearing substantial extra cost just to maintain the status quo. Many owner-managers will find themselves on the wrong side of the dividend tax changes and the introduction of quarterly reporting could be both burdensome and expensive,” comments Lee Blackshaw.

2015 review

“2015 became a conveyer belt of macro-economic hurdles for the British economy - the abandonment of the Swiss peg, swiftly followed by the General Election, a slowdown in China and an ongoing decline in the oil price undermined confidence and caused the financial markets to remain jittery,” says Lee Blackshaw.

“Whilst these wider market issues may not have directly affected the majority of UK businesses, these widespread concerns will have filtered down to SMEs, suppliers, lenders and consumers. Somewhat surprisingly, 58% of our respondents believed that access to funding was declining in the last quarter to reach its lowest point since 2014.”

“Notwithstanding these negatives, British business remains relatively robust with strong domestic demand and productivity starting to trend higher. As a result over 68% of our respondents believed that 2015 was a positive year for British business.”

This was posted in Bdaily's Members' News section by Smith & Williamson .