December 5, 2022

A third of UK small businesses are planning to make staff redundant over the next few months, rising to more than four in 10 in London, according to a new survey.

In a clear sign of the financial stress felt by many owner-run businesses as they head into a potentially difficult new year period, many also said they would be forced to raise prices, with Britain’s supply chain meltdown being cited as the main reason – adding further to inflationary pressures.

The poll of 442 businesses found many were struggling with repaying the debts they racked up to get them through the pandemic as well as grappling with other challenges from supply chain disruption to shortages of key staff such as drivers and chefs, and high energy costs.

A separate study by the accountants EY, which reveals a clear divide between the winners and losers in the pandemic, found that thousands of firms, mostly major corporate entities, paid down existing debt far faster than predicted in 2021. It said UK businesses would repay £1.6bn over 2021 after borrowing £35bn in 2020, an amount driven by firms that have fared well over the past 20 months.

Recently introduced rules relating to the new Omicron variant, which have dealt a blow to many city centre outlets reliant on commuters and made life harder for hospitality businesses such as nightclubs, coupled with the end of the furlough scheme in September, could turn the screw further on many small firms.

Accountancy firm Moore UK said its latest quarterly survey of owner-managed businesses found that 33% were planning to make redundancies over the next six months now that the safety net of furlough had been removed.

Businesses in London were more likely than those in any other part of the UK to be planning redundancies, with 42% considering laying off staff. This is likely to reflect the effects of the pandemic on the finances of the hospitality sector – restaurants, pubs, hotels and so on – which makes up a significant part of the capital’s economy.

Those UK small businesses planning to make redundancies were, on average, considering shedding 45% of their staff over the next six months.

Maureen Penfold, the chair of Moore UK, said that while a wave of redundancies did not materialise when the furlough scheme ended, many businesses were now waiting to see whether layoffs became necessary over the coming months.

“It’s surprising to see so many businesses are considering reducing staffing numbers so substantially. Policymakers should be careful not to assume that the economy is back in rude health – especially taking into account how the new restrictions just implemented may further impact businesses,” she added.

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They survey also shows that 49% of those questioned said they expected to have to increase the prices they charged over the next six months. The majority cited disruption to their supply chains as the main reason.

“Price increases are the only response they have,” said Penfold.

About 38% of businesses said increased staffing costs were the main contributor to them looking to increase prices.

Some firms, including a number of restaurants and clubs, have said they are being forced to offer hefty sign-on bonuses of £1,000 or more to attract key staff as shortages intensify.