FSB Podcast
FSB Podcast
The Small Business Round-Up: September 2022
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In this month’s Small Business Round-up, we discuss the rising cost of doing business and the affect of rising inflation and energy prices on small business owners. We also look at the key findings of a new FSB report into skills and education and how small businesses can tackle skills shortages and gaps.
Guests:
Tina McKenzie, FSB Chair, Policy and Advocacy
Hollie Whittles, FSB Policy Champion for Education and Skills
Welcome to the latest FSB monthly roundup podcast brought to you by the Federation of Small Businesses, and the go-to podcast for news tips and important information for small businesses and the self employed. This episode is our September Small Business Round-up, in which we will take a look at some of the important issues hitting the headlines at the moment and which you may well need to be aware of as a small business owner. To help us look at the issues we'll be discussing today, I'm pleased to say I'm joined by two guests. They are Tina McKenzie, FSB chair policy and advocacy who will talk to us about the continued rising costs of doing business, the impact of rising inflation on small businesses and other rising costs such as energy and Holly Whittles, FSB policy champion for education and skills, who in the midst of results season is here to talk us through the key findings of a new FSB report into skills and education and how small businesses can tackle some of the challenges they're facing with skill shortages and gaps at the moment. Thank you both for joining us. Tina, I'll start with you if you don't mind. This rising cost of living and rising costs of doing business appears to be continuing unabated. Just how severe is the rising cost of doing business right now? And what are the key cost rises that small businesses are seeing?
Tina McKenzie:Hi, John. And thanks. That's an important question to start with. And what we're seeing is that small firms are facing a toxic mix of the soaring energy bills, and other business costs, as well as high taxes, rampant inflation, and negative economic growth. And our recent survey, 9 out of 10 businesses told us that they believe their costs are higher than a year ago. And that's driven, according to them, by the fuel utilities, then input labour and tax hikes. So I think the soaring energy bills are really kind of at the forefront in the cost of doing business crisis. And it's been building for a while, as we know. And some of the businesses were working with that are our members are seeing their bills go up three, four and five-fold. Between February in 21. And August in 22, we estimate at the FSB, that for small firms, the bills have risen by 349% for electricity, and 424% for gas. And there's plenty of individual examples where it's even higher. And that's kind of not what we hear in the press. But this is what our members are saying. And then just if you look at production costs, more generally, they've gone through the roof. So we talk a lot about consumer inflation, which is now just over 10%. But the rate of inflation for producer input costs setting at 22%. So really, the challenges they have out there just unprecedented.
Jon Watkins:Yeah, and you know, what's causing this? I mean, I know some of the issues have been well documented and talked about in the press. But what's really causing this small business level?
Tina McKenzie:Well, if we think about the energy costs, and those huge numbers for electricity and gas, on like domestic consumers, small firms are not protected by a price cap. And so far, they haven't been offered any sort of direct financial support to match that even given to households. And so were large businesses can hedge their energy costs, or even are in a much stronger position to negotiate. And consumers have the energy cap, small businesses really are left to it. And especially I think the micro businesses are, they're much more like domestic consumers and yet have no protection. And what we've seen is lots and lots of insolvencies over the past year among small energy suppliers. And that's forced a lot of small businesses and go under new tariffs at short notice, and then they're open to having to take what they find. And so the degree to which I guess small businesses, bills for electric and gas have increased, also depends on a range of factors, you know, whether the businesses already signed up to a fixed-price contract, which is important. And when they signed up to that contract, because a lot of people are saying that's coming to an end, and that's when they're getting these crazy quotes in. And then for those businesses that are coming to an end, they just are actually now asking themselves about the viability of the business because they can't re-sign up to these eyewatering contract prices. It's just not feasible. And again, nobody's coming to their aid, there's no support being offered at the moment.
Jon Watkins:Yes, FSB was quoted in The Times this morning as saying, you are concerned about lots of businesses having to fold as a result of this increased cost of doing business. You know, just what is the impact on small businesses, their workers, their families, you know, it goes beyond sort of day to day running costs, right?
Tina McKenzie:Yeah, well, we talk a lot about the economic impact and and that's very important to whether the business can survive; the feasibility of the business. And some of these businesses are businesses that really, really supported their communities through COVID. You know, they emptied their savings pots, they took out extra loans, they did everything they could to get through COVID. And here they are with a new crisis, and they don't have anything left in the pot. But they're definitely the more important part of this is the human part, that these are mostly family businesses. And this affects, you know, real families and businesses that may have been generationally in the family, and they're having to close them now or having to let staff go. And, you know, although we have high levels of employment in the UK, we are expecting higher levels of unemployment, why because of the amount of staff that are having to be let go for small businesses, because they just can't afford to pay them. So I think, you know, we talk about stress and worry, and the mental impacts of this on on small business owners, it's, it's really worrying, and it's it's really just not acceptable, that they don't have any support when they really supported their communities through COVID.
Jon Watkins:Yeah, and you know, some of the numbers are eyewatering. But those impacts as well are devastating on a human level, are there steps and measures that small businesses can take to help relieve some of the pressure? You know, we, we heard a lot of talk, as this issue was emerging around, whether it was right, a good time or a bad time to switch provider and things like that. Are there steps that even small steps they can take to relieve the pressure in some way?
Tina McKenzie:Yeah, I mean, I think for this, this isn't new to small businesses. So for several months, people have been looking to cut back in whichever way they can, some businesses have had to actually just cut back even on their opening hours, cut back, for example, on menus, and talk to their suppliers about you know, how they can manage payment plans, and also talking to others about you know, how quickly they get paid. So looking at the customers and asking for, especially the bigger businesses to pay them on time, that really helps with their cash flow. And so you know, they've been looking at what to do for a long time, in terms of the consumer facing or even business to business, you know, they can't increase the prices to the degrees, that the you know, that for example, the gas electric bills are going up by because essentially, just no one would, would pay it. So, so it's really about looking at the cost, looking at vital things they can do, making sure they have enough to their business plan, you know, looking now at whether there's less obvious costs beyond allergy that you can save a little bit of money on. But I think going back to cash flow, cash flow is king. So chasing invoices as quickly as you can and getting customers to pay them as quickly as they can.
Jon Watkins:Yeah, that's good advice, you were quite clear Tina, that, you know, businesses aren't getting the support they they need, what would you like to see from government in terms of help?
Tina McKenzie:We've we've talked to ministers, counsellors, you name it, we've been talking for months now and putting out press releases, speaking on media, speaking directly to politicians, and basically saying, well, here's some simple things you can do. So you know, help for small businesses in the way that you help consumers with domestic consumers with the energy bills, even if that was just the micro businesses that are in the sense, like those domestic users, maybe a cut and VAT across the board, which would give a a bit of an encouragement the economy. But if that's not possible, at least on energy costs, cut the VAT on energy costs, a cut in fuel duty, so many businesses are relying on fuel, and the cost of it is just astronomical. And let's look at the duty that's the taxes the government are taking. Because, again, they're taking so much more than they expected. Could they reduce that for a period, we said it at the time that the increase in leisler insurance just at that nfo was just not acceptable. And we would like to say that, and that's really attacks on jobs. And we'd like to see that reversed. And then finally, an extension of business rates for the Fed really helped to take more small firms out of business rates all together. And you know, there are key financial moves the government can make, there's also a few other things they can do that aren't financial, they can encourage the local authorities to push out the money that the government allocated to them for the COVID response for small businesses that they haven't actually released allow local authorities have done a brilliant job, but a lot of them have not released all those funds. And then finally, the government could really help us ensure that big businesses pay small businesses on time, and that wouldn't cost them any money either. So there's things they can do to make it easier on small businesses and remembering that small businesses employ more people in the public sector and big business in the UK and there employ more than 60% of the employees in the UK. So it's it really has that kind of population has to be protected.
Jon Watkins:Yeah. And those measures are presumably important because this isn't just a short term issue, is it? It's going to run for some time?
Tina McKenzie:Well, this is it, we really don't know. And if you look at what the small businesses are saying, and the surveys recently is that, you know, head isn't looking, they're not confident about the future, it isn't looking good. And you know, anyone listening to this knows, if you look at social media, or turn on the news any night, the news just seems to get worse and worse about the future of the economy. And so there's not a lot of confidence. And we all know that when there's not a lot of confidence, it kind of accelerates our recession. And so we've got to really see some measures where the government stepped in to stop that from happening.
Jon Watkins:That's brilliant. Tina, thanks for talking us through that and and what you'd like to see from government, let's hope we get some of that support. Holly, I'd like to talk about your the FSB reports into skills and education. This is a pertinent subject right now, given its results season, but also, because of the some of the longer term challenges I guess that small businesses are facing with finding the right skills and talent for them, can you give us a very quick overview of the report and what it will cover?
Hollie Whittles:Yeah, so it's a very detailed white paper where we're looking at education and skills sort of across the whole of them, the patch, and it's looking at the problems that small businesses are facing things like recruitment challenges. FSP, research has shown that 70% of small businesses are experiencing recruitment difficulties, things around education and skills development, small businesses create great value in our education system. So we're looking at these basic types of skills, things like literally numeracy and digital skills. 48% of small business owners are saying that these technical skills are actually it doesn't matter which first call you in, they're going to be needed across all of them. And also looking at things like apprenticeships and the T levels, and what training that you can do. And this is not just for existing staff or older stuff, this is also encouraging younger people into the fold as well. So there's been a, we're almost missing some of those people that may not necessarily want to go down the academic path. So how can we have small businesses, encourage them to upskill themselves and take advantage of some of these things, especially things like T levels, where you get the opportunity to go and work in a workplace, at the same time, you're getting a great qualification. So the paper is kind of covering all these different things that small businesses are having to tackle in terms of education and skills and apprenticeships, and trying to recommend some quick wins and some solutions, you know, things like taking advantage of employer incentives. So this is something that we adopted in our company, we took on an apprentice, and we got the £3000 pounds, which was really, really helpful when it you know, we things like buying kits and paying for training for them. So taking away those kinds of things would really sort of damage small businesses. So very much the white paper is covering, you know, how can we encourage small businesses to take advantage of all these different things that are on offer?
Jon Watkins:Yeah, and I touched on in my intro there on sort of ongoing challenges around getting the right skills and talent. Why is education skills such an important topic? And, you know, recruitment difficulties have been well documented, but just how severe are they right now, for small businesses?
Hollie Whittles:It's actually really severe. And I'm struggling that with my own company, 78% of businesses are struggling to FSB research, the market is completely sort of turned on its head, it's very employee-led at the moment with them telling you how they're prepared to work. You know, they want to work from home, they want huge salaries, and they want all these different things. And as a small business, that's really, really hard, especially for those of us that have got tenancies and you're already paying for office building, rising energy costs. So that's just one thing. But in terms of education, and skills, you know, these are the future people that are going to input into our economy. So we need to get them properly skilled and trained up. And for me, it's something I'm very, very passionate about, because the people are our business, everything that we do, we couldn't do without the people. So getting them the right education and getting them to the right training is absolutely vital for our business to survive. And so I'm really sort of going to try and help push this paper forward because there's so many good ideas in there of how we can actually upskill not only the young people, but also our existing staff.
Jon Watkins:Yeah, and those that upskilling obviously has cleared If it's for business, but it's wider than that as well, isn't it does this encourage greater social mobility, for example?
Hollie Whittles:Absolutely, and especially from those that have come from challenge backgrounds shifting that social status is really, really important. And that's where I think businesses can help with things like getting involved in becoming an enterprise adviser, or a STEM ambassador, and actually going into schools and colleges and talking to them, explaining what it's like, you know, out there running a business and the types of careers that they could have. And this is where you can really excite them and actually get them into our industry. So it's something that we do as a tech business, you know, a lot of students might think it's really boring, and I want to go into it. And then we go in, and we talk about machine learning and artificial intelligence, and all these really amazing things. And then all of a sudden, you can see their eyes lighting up. So I think it's really important that even though they might be coming from maybe a deprived background, that you can get to them at that time, and think about what kind of careers they could be doing.
Jon Watkins:Yeah, the report covers the sort of value of apprenticeships and, and training, you know, what, what, what can small businesses do to sort of your or what can you do to encourage small businesses to do more hiring of apprentices and more and more in work training?
Hollie Whittles:I think, as businesses, we need to communicate better. And I think also the government needs to communicate better. And and again, the white paper touches on this, I think a lot of businesses are unaware of things like the apprenticeship levy that they can access, they were unaware of what T levels are, they didn't know about the incentive payments. And sometimes they're limited by what their local college offers. And you know, they haven't got time to research further than that. You can do apprenticeships online, you don't have to do it in person anymore. So I think greater communications around some of these incentives and some of these schemes that can help these businesses because that means that you're then benefiting the individual as well.
Jon Watkins:And I guess, part of this is the some of these people were talking about could be the small business owners off tomorrow, couldn't they? Is enough being done to help them develop the skills they need to perhaps start their own businesses down the line?
Hollie Whittles:Yeah, definitely. And the FSB, which has shown that 26% of small business owners are saying that leadership and management skills are absolutely vital to future growth. So accessing schemes, like help to grow, where you get put through, almost like a mini MBA is fantastic. But it's actually getting that message out there that you can access that scheme, I think, is sometimes the bit that's missing. I've also been making it accessible as well. So for example, I was approached my I don't want to go through the scheme, but they only gave me like one week's notice. And then I was going to have to commit to 12 weeks of this than the other and I'm like, my diary just doesn't work like that. So I think it's making colleges and universities putting on some of these schemes realise they've got to be more organised, because our small businesses were already kind of just keeping our heads above the water. And they need to communicate this because actually could that could really help a small business to grow, they could access that scheme.
Jon Watkins:Yeah. And in terms of that sort of guidance and advice, is there a sense here that careers advice presented to young people isn't quite presenting an accurate picture of the labour market and their different options? Are they getting the right guidance in terms of the options available
Hollie Whittles:I think that's very challenging, because we've to them? obviously just been through lockdown and employee engagement with schools and colleges, has obviously dropped. I know locally, I still carried on trying to deliver careers talks incentives digitally. But I think it has had an impact on actually getting to those students, if you think of things like the Gatsby benchmarks, in it benchmark 4 is talking about that touch base between employers and students. So I think we definitely do need to do more to make that bridge between the two. And that's why I always recommend things like the enterprise advisor scheme through the careers and enterprise company. I just think that's a brilliant way of actually getting some at the source.
Jon Watkins:Yeah, there's lots of sort of different levels of qualification training available today. You've mentioned T levels a few times. Can you just give us a very quick overview of how tea levels work? And perhaps what can be done to encourage more small businesses to host into industry placements?
Hollie Whittles:Yeah, so industry and placements work experience, I think are fantastic ways of getting people into this, and T levels are sort of 80% you're sort of working in a small business, and 20% you're working with the college. So it's equivalent to about three A levels. So again, that's a great thing that's been introduced, I think a lot of small businesses are completely unaware of, and again, the paper picks up on that. So it's making businesses aware that there are these new levels that have come out that actually they could take advantage of. And they should really be thinking about hosting those industry placements where they can give people real life work experience and actually bringing on an apprentice, it's not a huge cost to start off with. So if they can take advantage of the employer incentives, that makes it even better, but I do think that employers are baffled with some of the educational terminology, you know, when they changed it all the way from A, B, and C, and it's now 98765.... It can be hard when you're looking at CV trying to work out well, what's that equivalent to back in my day, you know, is that a GCSE, is that an A level? What is it? And so again, greater communication around what all these different things mean, I think would really help.
Jon Watkins:Absolutely. Tina and Holly, thanks so much for taking us through the key small business announcements in the headlines right now as part of our monthly small business round up podcast series. It was really good. Thank you also to our audience for listening to this episode. While I have your attention, I would just like to remind you that you can subscribe to the FSB podcasts to receive regular updates and guidance on the big issues affecting small businesses. And do please also remember that you can find a whole host of additional webinars, podcasts and other content on the FSB website at fsb.org.uk Thanks for listening.