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Inflation and rate rises could cost SMEs £7bn this year

Inflation and rate rises could cost SMEs £7bn this year

Rising inflation and business rate increases could add £6.8bn in extra costs for UK small and medium enterprises, it has been predicted.

Research from insurance group RSA has found that SMEs expect 2017 to be a tough year for business, with increasing costs a top concern.

One in four (39 per cent) SMEs told the insurer that business costs were among the top three risks to their business this year, with the combined cost of inflation and rates estimated at £6.8bn.

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Inflation is expected to rise by 2.7 per cent this year, and new business rates will be introduced in April, with the average high street store seeing their fees rise by 8.4 per cent.

Some Central London premises could face rate hikes of up to 100 per cent. 

Meanwhile, 71 per cent of small firms said that they expect revenues to either shrink or stay the same in the year ahead, and half of all SMEs think that the government is not doing enough to support the UK’s smaller businesses.   

“The business environment is expected to become much harsher in the coming year, and it’s crucial that businesses plan ahead to ensure that they are prepared,” said Russell White, schemes and deals director, Commercial Risk Solutions at RSA.

“The government also has a role to play by considering ways through which it can mitigate the negative effects that increasing business costs could have on the economy.

"One solution could be increasing the small business rate relief threshold so that it includes properties with a rateable value below £20,000 rather than £12,000. Employing such a strategy could result in the government generating more money than it would have done in the long run by boosting business growth.”

The RSA report, titled ‘Economic Imperative’, predicts that SME growth will be hindered this year as stagnant revenues mean that any increase in costs will eat into their profit margins.

It added that the impact on the UK economy “could be significant, given that the businesses that expect their revenues to shrink have a collective turnover of approximately £252bn”.

Alan Solomons, director at Alpha Investments and Financial Planning said that the results of the report are not surprising.

“People are obviously going to be concerned by the impact of inflation caused by Brexit and whether they will able to pass those costs on to the end user,” he said.

“So far the UK economy has been doing OK. But if your business rates are being hit in the high street, it may mean that some businesses can’t afford to continue because they’re making money but they aren’t doing that well, and the extra thousands of pounds in rates will make it impossible to continue trading.”

Mr Solomons singled out the retail and service industries as being particularly at risk, and added that technology and artificial intelligence could put pressure on traditional business models such as shops and taxis.