Business development · 13 January 2016

New laws place heavier burden on small firms, experts warn

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Auto-enrolment and the national Living Wage could place a heavy burden on small businesses

Fears have arisen that disparity between the growth prospects of large companies and small firms in the UK may increase due to imminent government legislation.

Expert commentators have cited auto-enrolment and the introduction of the national Living Wage as policies that could have a more acute impact on the growth prospects of smaller businesses.

The president of insolvency trade body R3, Phillip Sykes, has issued a warning about the new measures. “The changes will be a much heavier burden for smaller businesses to bear, so we may see the disparity with larger businesses grow further.

“It will be interesting to see the impact incoming legislation will have on businesses. Large companies continue to experience more signs of growth than small counterparts, and the gap has widened,” he said.

An R3 survey found that 87 per cent of British companies with more than 250 employees currently experience a variety of growth indicators, whereas only 60 per cent of sole traders do.

Sykes added that despite this disparity, growth prospects for British businesses overall looked promising. “There has been a reasonable level of growth in recent years and record low interest rates have facilitated high liquidity. The level of businesses in distress has plummeted,” he added.

The survey found that individual factors contributing to businesses in distress were at record lows. Just five per cent of UK firms surveyed reported a fall in market share since April 2015, whilst ten per cent experienced a fall in sales volumes. Overall, 12 per cent of companies experienced a decrease in profits.

“Healthier profitability will help businesses stay on top of their cash flow. However, recent volatility in the stock market, driven by worries over China, could be a sign that businesses might be in for a bumpier 2016,” Sykes went on to say.

A survey conducted by the Federation of Small Businesses (FSB) in October last year discovered that 38 per cent of small business owners expected the national Living Wage to negatively impact an ability to employ staff.

FSB national chairman, John Allan, said at the time: “There is a real risk that higher enforced statutory wages will lead to fewer jobs being created, fewer hours for existing staff and, unfortunately in some cases, to job losses.”

“In many industries, the only sustainable way to deliver real long term growth is to improve productivity,” he added.

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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