UK SMEs paralysed by fear despite ‘sitting on piles of cash’
Small-to-medium sized companies in the UK (SMEs) are “paralysed by fear” because of geopolitical uncertainty and a lack of clear economic policy, according to new research.
Accounting and advisory group Azets said a large number of SMEs are “sitting on significant piles of cash” but are nevertheless holding back on investment.
The warning, issued by Azets’ UK CEO Peter Gallanagh, comes off the back of the company’s spring survey, which shows SMEs flagging economic uncertainty, geopolitical instability and trade tariffs as their top concerns for the next 12 months.
When asked about overall risks to their business, a volatile tax landscape and lack of long-term financial predictability were among the top three worries. Higher labour costs was the number one concern.
Gallanagh said: “SMEs are asking for clarity from the government around tax policy and long-term economic plans.
“Without it, confidence to invest simply won’t return. Right now, SMEs are treating cash as insurance, not fuel for growth.
“We’re seeing caution override ambition – and that’s holding the UK economy back.”
Off the back of the new data, Gallanagh has called on the government to listen to SMEs and commit to a long-term economic roadmap that gives them the confidence to plan, invest and grow.
He added: “We need to fill entrepreneurs and business leaders with confidence that investments in growth areas will not be undermined by sudden policy shifts or unexpected regulatory changes down the line. SMEs have the ambition – the policy needs to catch up.”
SMEs expecting to shrink as confidence falls
The data from Azets comes after City PM reported that more small business owners expect their firm will shrink, shut or be bought over next year than predict a year of growth – for the first time in at least 15 years.
According to a poll by the Federation of Small Businesses (FSB), 27 per cent of bosses believe their company will downsize, be sold or shuttered entirely in the next 12 months, compared with just 25 per cent who believe their firm will expand.
The finding – from the industry body’s quarterly sentiment survey – is the first time pessimism outweighed optimism among business owners since the study started in 2010.
Overall, the FSB’s headline confidence measure dropped to -44 points in the second quarter of this year, from -41 points in the first quarter – as firms adjusted to the twin hikes to employers’ national insurance contributions and minimum wage.
Earlier this month, Chancellor Rachel Reeves was called on to reverse her autumn Budget tax hikes and ease the burden for firms as they suffer the crunch of economic uncertainty.
One in five SMEs expect to be forced out of business if conditions don’t improve, research from Simply Business found.
Julie Fisher, UK chief executive of Simply Business, told City PM: “Suggestions of further increases come at a time when small business confidence is at a low point.”
Over 50 per cent of firms have said they expect the economy to worsen, which is double the amount in 2023.
At the start of July, financial advisers raised concerns about the lack of support for small businesses in government policy as firms feel the pinch of economic pressures.
Over half of advisers surveyed by alternative lender Thincats branded government policy as unsupportive of SMEs while just six per cent said it was supportive.