- 64% of SMEs believe high inflation will have the biggest impact on their long-term business growth, compared with COVID-19 (22%) or Brexit (11%)
- 16% of smaller businesses plan to increase salaries and benefits in the coming months, while 14% intend to offer staff increased hours
- There may be bad news in store for some workers, with 16% looking at reducing employee hours (16%), not paying bonuses (12%), cutting pay (11%) and not paying salary increases (10%)
6 October 2022
Small businesses expect the inflation and cost-of-living hangover to be worse than both COVID-19 or Brexit, WorkLife by OpenMoney’s latest Small Business Monitor has found.
Nearly two thirds (64%) of firms say that high inflation and the cost-of-living crisis will have the biggest effect on their long-term business growth, a study by WorkLife by OpenMoney of 750 senior financial and HR decision makers at SMEs has found. This is compared with just 22% who expect COVID-19 to be the most impactful, and 11% who believe Brexit will be the key affecting factor.
Overall, rising costs dominate the list of what SMEs expect to cause them the most stress over the coming year, with energy and fuel costs and other inflationary pressure the highest (37%). A fifth (22%) cited helping employees manage the rising cost of living as a key concern.
A mixed bag of responses to rising inflation
Unsurprisingly, cost cutting and price rises are set to be the most popular means of offsetting high inflation over the coming months. Almost a third (32%) of SMEs WorkLife engaged with were looking to source cheaper products and services from suppliers, while the same number (32%) plan to increase the cost of their products and services, suggesting that there could be more pain ahead for Brits already struggling to cover household necessities.
Elsewhere, almost a quarter (23%) of senior SME decision makers are putting their plans to invest in the business on hold in the coming months, while 12% are planning to scrap plans altogether. Ending office use (15%) and downsizing the business to give up some office space (15%) are part of the plans of a sizeable minority.
Encouragingly, employees’ needs are high on the list for SMEs. One in six (16%) smaller businesses plan to increase salaries and benefits, while 14% intend to offer staff increased hours. But there may be bad news in store for some workers, with 16% of respondents looking at reducing employee hours (16%), not paying bonuses (12%), reducing pay (11%) and not paying salary increases (10%).
More Government support is needed to help SMEs mitigate inflation
While recently announced support – such as the energy bill relief scheme – may help ease the burden for small businesses in the short term, the study highlighted several areas in which firms want more support to help them offset rising costs and support employees through this challenging period.
Four in 10 (42%) SMEs believe VAT relief or a lowering of the rate is needed to support SME businesses. A similar number (40%) feel tax relief on employee benefits would be useful to help support the options they can give to help their staff.
More than a third (36%) of senior SME decisionmakers would like to see Government grants to help offset higher costs.
Niamh McLaughlin, Managing Director at WorkLife by OpenMoney commented: “After two years of uncertainty brought about by the pandemic, the cost-of-living crisis has created yet another hurdle for small businesses to overcome. But despite deep concerns decisionmakers have over these issues, once again they have risen to the challenge and are adapting to overcome their impact.
“Though it’s concerning to see the threat of redundancy and pay cuts lingering for some workers, it’s encouraging to see the number of firms who have focused their response to rising inflation and bills on employee needs, rather than simply trying to cut back costs or claw back the additional outlay.
“Offering targeted rewards and support now could have a significant impact on long-term motivation and loyalty, especially for those firms whose operating costs will be hardest hit and may not be able to afford pay increases or bonuses.”
WorkLife’s Small Business Monitor is based on research carried out by 3Gem among 750 senior financial and HR decision makers in UK SME companies with 5 – 250 employees. Fieldwork for the Summer report took place between 17-26 August 2022.