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Hiring woes puts brakes on UK small business recovery

April 4, 2022

Despite encouraging sales figures, many small firms are still suffering from slow jobs growth and late payments, Xero’s Small Business Index shows

Small businesses across the UK are struggling to fill job vacancies to support consistent sales growth, according to new insights from Xero. Based on anonymised and aggregated data, the number of jobs provided by them fell by 4.3 percent year-on-year in February (when adjusted for base effects).

Xero’s Small Business Index, which includes data from hundreds of thousands of small businesses, fell to its lowest rating in over a year, underpinned by a shrinking labour market. With fewer people in work or looking for work compared to before the pandemic, the data shows that there are 8.4 percent fewer people working in small businesses than there were in February 2020.

Despite a slight bounce-back in the last year, hospitality remains the worst impacted sector, with 22.7 percent fewer jobs than two years ago. However, the manufacturing industry has also struggled to recover employment levels, with 15.1 percent fewer jobs than in February 2020.

London is not faring so badly as there are now 2.8 percent more people in employment compared to two years ago. However, all other regions are yet to reach pre-pandemic employment levels; those in the south east (13.5% fewer), west Midlands (12.5% fewer), and the north west (10.7% fewer) have a particularly long way to go.

The data also reveals that late payment times continue to surge. In February, small businesses had to wait an average of 30.5 days to be paid by their customers from when an invoice was first issued. This is 1.7 days higher than the figure at the end of 2021 and the longest wait time since September 2020.

On average, payments were made 8.2 days late. This is 2.5 days longer than at the end of 2021 and the longest late payment time since August 2020. As the cost of living continues to rise, small businesses will increasingly depend on reliable cash flow to meet their own rising input costs.

Green shoots of recovery

In spite of the many struggles, and against an extremely challenging backdrop, the index tracked a twelfth consecutive month of positive sales growth for small businesses. This is an increase of  8.8 percent year-on-year (adjusting for base effects). This strong commercial performance shows that many are rebuilding well but highlights economic potential that can only be realised should the key challenges be resolved.

Adjusting for base effects, those in administrative services (12.6% y/y) and media/communications (12.2% y/y) showed the strongest sales growth, while those in the north west (11.4% y/y) and east of England (10.7% y/y) also performed particularly well over the last year.

Alex von Schirmeister, Managing Director at Xero, said: “Sustained sales growth is an encouraging sign for small businesses, but will that money go far enough in today’s current climate? It doesn’t offset the other challenges they face, and it will be difficult for them to fully recover from the pandemic until they can get the right people on board.

“While training schemes and an increased employment allowance are helpful gestures, the Government can and must do more to reduce the devastating impact of late payments or  ‘unapproved debt’ on business owners. The lifeline that small firms were hoping for didn’t materialise in the Chancellor’s Spring Statement, which makes tackling late payments more crucial than ever.”

More information on the February metrics is available here.

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