More small firms laying off staff due to low business confidence

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Small firms are in firing rather than hiring mode as business confidence plummets, according to the Federation of Small Businesses (FSB).

The organisation’s quarterly “Voice of small business” survey, produced by the Centre for Economics and Business Research (CEBR), found that 5.8% more FSB members intended to lay off employees than recruit new staff over the coming quarter, compared with respondents showing a slight tendency (+0.5%) towards hiring when polled three months ago.

For some, the push to further downsizing has already begun, with the balance of members reducing as opposed to increasing numbers rising from 2.3%  to 3% in the second quarter of 2011. In the same quarter in 2010, only 0.4% more firms were contracting than were expanding.

Charles Davis, managing economist at the CEBR, said: “Whereas the private sector overall has been creating jobs, small firms appear to have been shedding staff. At a time when the Government is also cutting back employment, this raises worries about a significant increase in unemployment, which has already been rising.”

The overall level of confidence among small businesses fell from a positive balance of 0.3% in the second quarter to a negative score of 9.3%, the second lowest figure since the index started in January 2010.

The FSB is calling for the Government to introduce measures including a national insurance contributions holiday for small firms to help cope with rising costs and a targeted cut in VAT to encourage consumer spending.

“As businesses come to terms with the double whammy of falling revenues and rising costs, it is no wonder that they’re losing confidence and, unfortunately, as their overheads increase, one way to control it is to lay off staff,” said John Walker, FSB national chairman.

“This is the first time that we have seen confidence in all regions of the UK in negative territory,” he added. “We urge the Chancellor to look closely at our national insurance contributions holiday proposals and bring this forward in his autumn statement. We fear that without it, the recovery will falter once more.”

Figures out earlier this month showed that unemployment had risen to 2.57 million, with almost a million people aged under 24 out of work.

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