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335 – Keeping small businesses in business

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SOME data I’ve just seen from Experian suggests that all is not well in the small business community.

Experian has picked up on a worrying trend: those small businesses with 11-25 employees saw a marked increase in insolvencies during September compared to the national trend.

Nationally, the business insolvency rate for September remained constant on August levels – the lowest since September 2008. But in the ‘bigger’ small business – between 11-25 employees – there was a problem.

I guess businesses of this size have an issue: they have a certain amount of fixed overheads, and with cash flow an issue, more vulnerable to the economic downturn. By contrast micro businesses it seems have adapted well – no doubt they’ve ducked and dived, mortgaged the house – anything to keep going. But persistence and a survival instinct is the hallmark of a micro business.

This is what Rolf Hickman, managing director of pH, an Experian company, had to say on the figures: “A flat insolvency rate in September coupled with a small improvement in the overall financial solidity of the business population is positive. August can be a slow month for insolvencies, which may have explained the low insolvency rate, but the fact that the low rate has continued into September is a good sign.

“Businesses with one to two employees alongside those with 501 employees or more, had the lowest insolvency rates. However, for some of those businesses in between, the rate of failure is markedly higher. In fact, over the past year businesses with 11 to 25 employees have particularly struggled, having seen among the highest insolvency rates.

“Micro businesses are often more flexible and able to access capital from friends and family to enable them to ride out an economic storm, while large corporate businesses have achieved economies of scale and have greater access to funds from capital markets.”

In the meantime, the Federation of Small Businesses has uncovered a new threat to the survival of small businesses: the possibility of the Chancellor imposing more taxes on small businesses in his Pre Budget Report.

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The Centre for Economics and Business Research (CEBR) reports that increasing the burden of taxation on the country’s small businesses – which make up 99% of all UK businesses – would plunge the economy further into debt and increase unemployment.

Small firms are facing an increase in employers’ National Insurance Contributions (NICs) in April 2011. The CEBR has modelled the knock-on effects of adding 1p to employers’ NICs and found that the NICs increase would cost the economy 57,000 jobs but only make a small dent in the public finances gap.

The FSB wants the Chancellor to freeze employers’ NICs completely, arguing that it will give small businesses the opportunity to take on more staff and tackle unemployment, thus helping to create the jobs. It’s hard to disagree with this. Lower taxes allows more freedom for small businesses to take decisions that will increase the revenue they car earn – including taking on more staff to boost profitability – which in turn will be paid back to the Treasury in Corporation and personal tax.

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I also saw today the idea has been floated of a transaction tax (a so-called ‘Tobin tax‘) on all transactions undertaken by financial institutions. This seems like a sound idea: there seems little control over the banks by the government; but taxing them on the transactions that lead to their profitability – even at 0.05% – could contribute thousand to the Treasury’s depleted coffers. And pay back something of the debt the banks owe to the national tax payer: us.

And not increasing the tax burden

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