Businesses face rising costs as new tax year looms

Date: 2 April 2019

Businessman working on company's finances

The latest British Chambers of Commerce quarterly economic survey has found that UK economic health weakened considerably in the first quarter of 2019 as rising business costs and the Brexit impasse take their toll.

The latest results from the BCC survey of over 7,000 UK businesses show a deterioration in many gauges of the UK's economic strength. The BCC says a slowing global economy, Brexit uncertainty and rises in business costs are all key factors.

The balance of firms reporting improved cashflow - a key indicator of business health - has now gone into negative territory for the first time since 2012.

In the services sector, the percentage balance of firms reporting an increase in export sales stood at zero, the weakest level since 2009. In addition, the orders balance has turned negative for the first time in eight years.

Among manufacturers, the percentage of firms reporting an increase in domestic and export sales and orders has dropped back to 2016 levels. The balance of firms looking to invest in plant and machinery or training has dropped in both sectors to the lowest level in eight years. Business confidence in profitability and turnover also deteriorated sharply in the quarter.

The Chambers is calling for an end to the relentless Brexit uncertainty. It is also blaming "ill-timed increases in business costs" including compliance with Making Tax Digital, higher business rates and increased employer pension contribution requirements.

"Our findings should serve as a clear warning that the ongoing impasse at Westminster is contributing to a sharp slowdown in the real economy across the UK. Business is hitting the brakes - hard," said Dr Adam Marshall, BCC director general.

"These are some of the weakest figures we've seen in nearly a decade, and that's no coincidence. The prospect of a messy and disorderly exit from the EU is weighing heavily on the UK economy, and must still be avoided."

At the same time, he said, "This week sees a new tax year with a number of changes adding to the upfront cost of doing business in the UK, including the introduction of Making Tax Digital and changes to auto-enrolment, leaving many firms facing more bureaucracy and new expenses."

The Federation of Small Businesses (FSB) has described the first day of April as "Blue Monday" because of these rising business costs and the new burden of complying with Making Tax Digital.

The FSB is pointing out that these changes are taking effect at a time when the Small Business Index stands at -5.0. The index is in negative territory for the third straight quarter - a first in its nine-year history.

"Overall, this is a package of changes that increases the costs of running a small business," said FSB chairman Mike Cherry. "For the first time since 2010, we saw a contraction in the size of the UK business community last year. All ministers and policy-makers need to take note and avoid bringing in new measures that would exacerbate this loss in 2019."

Written by Rachel Miller.

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