Small firms squeezed by high taxes, competition and labour costs - SFA

Despite strong economic growth, many small firms are working much harder for lower returns as profit levels are being squeezed by increased competition, high taxation and labour costs, according to the Small Firms Association (SFA).

A survey carried out by the SFA shows that labour costs are considered to be the most important barrier or threat to companies' growth and survival. Some 16 per cent of the respondents put labour on the top of their problem list.

The main reasons cited are lack of available skills in the labour market, the high mobility ratio for technical staff, employees seeking to be paid off the books and people who regard themselves better off on social welfare and secondary benefits. Around 15 per cent in the survey point to increased competition, both legitimate and from the black economy, as the main concern. These were listed as growth in consumer spending, which is attracting more and larger competitors, particularly within the retail sector, the high level of activity within the black economy, increased competition within the services sector and increases in British imported goods. Some 9 per cent cite the levels of taxation at both personal and corporate levels. The primary concerns are inability to fund investment through retained profits and substantial tax wedge difficulties for take home pay. Mr Brendan Butler, director, SFA, said the findings in the survey show the ability of small companies to remain competitive and profitable is being severely tested at a time when the economy is generally doing well.

He accepted that increased competition is a fact of life and has to be welcomed provided the playing pitch is level for all competing companies. However, "it is incumbent upon policy makers to be concerned that many small companies are finding it increasingly difficult to fill vacancies because of the level of taxation, skills gaps and the availability of `alternative' employment in the black economy for some workers". Mr Butler argued that because of the reduced overheads, those operating within the black economy have huge competitive advantage and also distort the operation of a competitive labour market and taxation environment.