Beaumont: Chancellor’s Plan for Northern Powerhouse May Be Headed for the Scrap Heap

Louise BeaumontThe National Federation of Self-Employed & Small Businesses (FSB) has released a report that indicates a “growing gap in confidence” between businesses in the North and those in the Midlands and the South. The FSB states businesses in the North risk being left behind. This is in contrast to the fact that overall confidence in the UK economy remains strong – driven by smaller businesses.  The FSB Small Business Index indicates;

“..in the last 12 months, smaller firms in the North East, Yorkshire, Scotland and Wales have all shown a year-on-year decline in confidence. In Wales, confidence has dropped into negative territory for the first time in two years. In Scotland, confidence levels are at their lowest levels since the start of 2013. Elsewhere confidence levels have remained stable, supported in particular by firms in technology and business/professional services.”

Louise Beaumont, Head of Public Affairs at GLI Finance, commented on the disparity between the two regions;

“There is a clear divide emerging between the North and South in terms of small business confidence, according to the latest index from the Federation of Small Businesses (FSB).  This is not surprising as SMEs in the North are having their overdrafts slashed at twice the rate of SMEs in London, according to research by Funding Options.”

Northern PowerhouseBeaumont is of the opinion that Chancellor Osborne’s much touted “Norther Powerhouse”, may be running out of steam;

Indeed, 55% of SMEs in the North have had their overdrafts cut or removed, compared to 25% of SMEs in London, meaning that the Chancellor’s plan for a Northern Powerhouse is in danger of hitting the scrap heap before it has even got going. The latest figures from EY predict that business investment will grow by 5.8% in 2016, accelerating to 6.4% in 2017 and 6.6% in 2018. While such news is welcome, these predictions seem optimistic given the FSB report’s conclusion that fewer firms are even applying for finance. The Government must do more to encourage SMEs to explore all of the finance options available to them so they feel confident in asking for the capital they need to help them thrive. After all, SMEs are the driving force behind the economy.”

Regarding specific industry sectors, the FSB states that professional business services and information and communication businesses are presently most confident. The largest drops in confidence are in transport and storage, and administrative support.

Even more concerning is that confidence in the real estate sector has dipped. The FSB states this is likely due to changes to tax rules which will potentially reduce sales and could constrain the availability of commercial property.

A quarter of FSB members are exporting firms. With continental Europe mired in sluggish growth and Asia a bit of a question mark further economic hurdles may be around the corner.