SME News March 2018

18 SME NEWS / Q1 2018 , LifebloodofUKeconomy faces triplewhammyof challengeswarnsUK’s largest challenger bank. Britain’s SMEs Facing Triple Challenge Warns CYBG Britain’s SMEs have recorded the worst business health reading since 2014, as rising business costs, a dip in confidence, lower net business creation and a lack of borrowing are taking their toll, according to the latest research by CYBG in partnership with the Centre for Business and Economics Research (Cebr). CYBG’s quarterly SME Health Check Index dropped to a score of 42.0[1], down 48% since 2014 and the fifth consecutive quarterly fall, suggesting a worsening business and macroeconomic environment since the EU Referendum in June 2016 and the ongoing Brexit negotiations. David Duffy, CEO of CYBG, commented on the findings and how they affect the UK’s SME market. “SMEs are the lifeblood of the UK, helping to drive growth, create jobs and sustain economic health. But SME confidence appears to be in short supply as many small firms are seeing rising business costs alongside continuing skills shortages. “Businesses are scaling back their investment and borrowing due to the wider economic uncertainty, contributing to the decline in the Index. The Government’s business rate changes in last November’s budget were appreciated, but in the current environment, SMEs would welcome more incentives to address skills shortages or further tax reductions to manage costs and restore confidence.” Representing 5.7 million enterprises, or 99.9% of total businesses in the private sector with a combined turnover of £1.9 trillion, the UK’s SMEs are unquestionably the heartbeat of the national economy. However, they are facing three key challenges, namely: 1. Rising business costs hindering growth: According to the Index, the costs faced by the UK’s SMEs grew at an annual rate of 2.6% in the fourth quarter of 2017, with one of the key drivers being a rise in employee costs, suggesting historically low unemployment may be beginning to push up wages. The rise in business costs is hampering SMEs’ growth plans, and according to new research by YouGov - conducted on behalf of CYBG - almost a fifth (19%) of SMEs, representing over one million, say rising business costs have greatly hindered the success of their businesses. Of those, 42% said it has resulted in lower levels of investment back in the business; 35% have been unable to build up cash reserves; and, 28% said it has caused an inability to hire new staff. 2. SMEs’ dip in business confidence impacting investment: A key driver behind the Index fall, figures show that SMEs are less confident and borrowing less, with lending down 3.7% to £92.5 billion in the year to the end of Q3 2017, the largest drop since the Index began in 2014. In terms of the last quarter for which data is available (Q2 to Q3 2017), bank lending to SMEs fell by £1.9 billion, or 2% year on year. Encouragingly, UK Finance data published at the end of February shows that lending to SMEs has stabilised in the final quarter of 2017, but firms delaying investment decisions remains a concern. 3. UK’s skills shortage causing annual sales loss: According to CYBG’s research with YouGov, the UK’s skills shortage is leading to an estimated £7.3bn annual loss in sales for SMEs, equivalent to approximately 252,000 new jobs on an average UK salary, and worth around £97 million in corporation tax revenues for the Treasury. The research shows more than half (55%) the UK’s SMEs - representing 3.1 million companies - believe the failure in finding the right talent is impacting on the bottom line. These firms say, on average, they are losing 18% - almost one- fifth - of potential annual revenue due to the skills shortage. According to calculations by Cebr, a leading economic think tank, this skills shortage leads to a £7.3 billion loss every year for Britain’s SMEs. Relatively new and medium- sized companies say they are being hurt most by the inability to find the right staff, with three