As the new financial year gets underway, rising costs are putting increasing pressure on London’s small businesses. Will the increasing expense of trading in the capital drive these small businesses out?

Rising business ratesLondon Small Business Pressure

A recent survey by the FSB found that 60% of firms in zone 1 fear rising property costs and business rates will force them out within the next five years.

The business rates bill for London’s small firms now stands at £8.2 billion, meaning the capital now pays just over a third of the country’s business rates bill.

Rising employment costs

With both the minimum wage and national living wage rising, these small firms are also feeling the pressure of higher employment costs. The minimum wage is now £7.38 for those over 21, while the national living wage is now £7.83 per hour, with new rates of £5.90 per hour for 18-20-year olds and £4.20 per hour for 16-17- year olds.

Sue Terpilowski, London policy chair at the FSB, has called for a review of the business rates system, pointing out that many small businesses in London have seen their business rates increase by over 20%.

“The high cost of doing business is putting additional pressure on wages and inflation for London businesses. The cost of employing staff generally and the heavy burden of cripplingly high commercial space costs is having additional negative impacts on small businesses.”

Auto-enrolment costs are also now a factor in employment costs – and an increasing one. The minimum employer contribution to auto-enrolment saving schemes has now risen from 1% of pensionable pay to 2%.

“Employers are already seeing the cost of employment rising significantly and by 2019 employer contributions for pensions will triple to 3 per cent,” says FSB’s national chairman, Mike Cherry, who believes more should be done to help small businesses absorb rising labour costs.

“By 2019, hundreds of thousands of small employers will have to pay up to £180 more per employee each year,” he warns. “For employers in certain sectors, such as care and hospitality, where margins are tight this will really add up.”

Weighing heavily: the cost of small business in London

The FSB’s latest Small Business Index in London, published in January, showed that 15% of small businesses in the capital intended to downsize, close or sell their business over next year.

76% of businesses had seen an overall increase in the cost of running their business operations in the past quarter, compared to 6% who had seen a decrease.

The root causes of the increase included labour costs, utility costs and the exchange rate. More FSB members had decreased staff than increased (12% vs 9%) and 43% said they had seen a decrease in gross profits, compared to 37% who had seen an increase.

Sue Terpilowski pointed to the high cost of rail travel, which puts additional pressure on wages, and the higher cost of employing staff generally in London, as factors that particularly impact small business costs in the capital.

“The cost of doing business is weighing them down. These businesses are beginning to feel like boxers taking jab after jab whilst on the ropes.”

National and local Government, along with the Mayor, must be on their side in 2018 to take businesses off the ropes and back fighting in the centre of the ring.”

If your small business is based in London, how are you coping with increasing costs – and how have business rates and auto-enrolment cost changes affected your business?