Inflation and recession dangers to fore: Colin Borland

We also have the complicating factor that inflation is, as far as I understand it anyway, primarily being driven by food and energy costs, which in turn have been driven up by the war in Ukraine and other factors beyond our immediate control. So it’s hard to see how making the Great British consumer’s mortgage a lot more expensive will lessen their desire to eat, stop them buying food, hence reducing demand and prices.

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And, just as the economy could go one way or the other, so too might many of the small businesses which comprise it.

I often caution against treating the business community as a job-lot. We cannot behave as though every firm’s interests and circumstances are the same. Not only does a multinational have very different needs and priorities to those of a local family-run shop, there’s a huge range of views and experience within small businesses themselves.

If you look at the results of our recent Big Small Business Survey, for example, it’s striking that there are so many questions on which respondents are split.

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Take turnover. Roughly the same number of businesses have seen takings increase as have seen them drop. 58% made a profit and 42% sustained a loss or broke even. The number of employers who have enough staff is only slightly greater than those who don’t.

We can also see variations across geographies. To pick one example, it seems the cost-of-living crisis has hit businesses in the Highlands harder, with 65% giving it as the main reason for decreased turnover, compared with 59% in the rest of Scotland. It’s a similar story across the sectors. When we asked businesses about their growth plans, 84% of those in information and communication said they planned to expand, compared with just 37% in hospitality.

Given that small businesses make up almost all of Scotland’s business base and cover every sector of the economy and corner of the country, this breadth and diversity of experience and outlook shouldn’t really be surprising.

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And yet, too often we still see solutions shaped by a system whose playbook involves a business and regulatory impact assessment after the fact (“Now that we’re doing this, let’s have a look at what the impact will be”). This outdated approach has led to episodes including, but not limited to, the ill-fated deposit return scheme.

Had the architects of that particular scheme fully considered the implications for the smallest operators, on whom they would have relied to make the scheme a success, many of the problems by which they were later beset could have been avoided.

As things stand, though, the Big Small Business Survey tells us that more than one-tenth of Scotland’s smaller traders spend the equivalent of at least a full working day each week on paperwork to comply with regulations. Little wonder that every time a new scheme is mooted, small business owners throw up their hands at the prospect of any further increase in their already onerous burden.

So, taken together, this new data paints more of a postmodern abstract than a landscape. Many firms are still clearly finding things very tough. But there are genuine reasons for hope when you look at the numbers with growth plans. However, neither those looking to grow or just hang on will do so unless the trading environment reflects their particular day-to-day business realities. That means getting costs under control. It means regulating sensibly. It means getting some consumer confidence back.

We can’t let the narrow economic path ahead taper to a knife-edge – that’s when we could manage to fall down both sides simultaneously.

Colin Borland is director of devolved nations for the Federation of Small Businesses (FSB)