New data shows slow job growth is stalling small business recovery
Small businesses across the UK are struggling to fill job vacancies, according to Xero
London - 4 April, 2022 – 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 labor 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 realized 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 UK, 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.”
Typically, the Index compares year-on-year (y/y) data to reveal how the small business economy is faring. However, as the data from February 2021 was significantly impacted by the pandemic, all comparisons in this release have been made using annualized two-year growth to account for base effects.
Xero is a cloud-based accounting software platform for small businesses with over 3 million subscribers globally. Through Xero, small business owners and their advisors have access to real-time financial data any time, anywhere and on any device. Xero offers an ecosystem of over 1,000 third-party apps and 300 plus connections to banks and other financial partners. For three consecutive years (2020-2022), Xero has been included in the Bloomberg Gender-Equality Index. In 2021, Xero was included in the Dow Jones Sustainability Index (DJSI), powered by the S&P Global Corporate Sustainability Assessment and in 2020, Xero was recognized by IDC MarketScape as a leader in its worldwide SaaS and cloud-enabled small business finance and accounting applications vendor assessment.
The Xero Small Business Index for the United Kingdom, part of Xero Small Business Insights, fell 4 points to 86 points in February. This result is the lowest reading for the Index since February 2021, when it was at 82 points. The Index has hardly moved over the past year - getting as high as 99 points in October 2021 before falling back into the 80s as the next COVID variant arrived.
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