My wife and I visit London a few times a year to see her family and our friends from university. We’re here again this time for the entire month of January living as Londoners, staying in a rented house, taking out the trash – sorry, rubbish – and buying our food at Waitrose. The stay has given me time to observe, talk to people and walk around, and here’s what I’ve learned: I need to stop complaining about how difficult it is to run a small business in the US. It’s much harder to run a small business in the UK. Particularly now.
Imagine running a business where inflation isn’t 6.5%, as it is the US, but 10.5%. The cost of living here is pushing British consumers to buy less – so much so that, according to a recent poll, two-thirds of them are planning on cutting their spending in 2023. In a nation of shopkeepers this is not insignificant.
Like the US, unemployment here remains low, so there’s still a shortage of workers and a continued demand to retain them which – combined with rising prices – is forcing business owners to increase wages. So a business owner in the UK is not only hit with slowing demand, but rising costs at the same time and at a rate higher than the US.
Energy costs are also hitting people hard. All of my friends here have complained that their utility prices have more than doubled this year, despite some help from the government. I’ve seen portable heaters in restaurants next to tables and even our Airbnb host asked us to try to keep the temperature below 17C (62.6F) if possible. The good news is it seems that energy relief is coming but it’s not coming fast enough.
How has this affected UK small businesses? Not great.
According to a new survey from outsourcing platform Fiverr, business owners here are reporting they have lost on average £83,000 since the start of the economic downturn, which equates to half of their annual turnover with nearly one in five UK start-ups and small businesses polled losing over £100,000 since the start of the economic downturn. Some business owners across the country say they have had to “shut their doors” because of these higher costs.
The Fiverr study also found that 92% of UK startups and small businesses are fearful about the future of their business and nearly one in five admitted to being “very fearful”. Confidence among UK small businesses has dropped, with another survey finding a 50% fall in the number of companies planning to expand this year compared with summer of 2022.
All of that, and then there’s Brexit. Maybe there’s an argument that the UK’s new-found freedom to control its economic destiny will work out. But clearly there are a great many people who disagree. Particularly small business owners that rely on foreign sales, like this British entrepreneur in the biking industry that blames Brexit on a revenue loss of more than £100,000, and more than three quarters of British companies that say that the trade agreement has made it difficult for them to increase sales and grow their business, according to a British Chambers of Commerce survey.
Even when the economy is strong, the UK regulatory environment for businesses far exceeds what we have to deal with in the US.
Most workers who work a five-day week must receive at least 28 days’ paid annual leave a year. The government also requires employers to give their workers additional time off for when they’re sick. Employers are mandated to provide paid and unpaid maternity leave, as well as making contributions to their workers’ retirement, healthcare and liability (workers’ compensation) plan. Taxes – excluding the impact of state taxes – are higher here, too, with the country’s top rate being 45% for those earning more than £150,000 ($180,000) as compared to the US top tax rate of 37% for those earning more than $523,000.
I’m not weighing in on whether or not it’s a good thing that the government requires all of these benefits from their business community. All I know is that none of this is required in the US, and that, even with all of these regulations, the UK economy remains the sixth largest economy in the world, even though there are 79 countries with more people.
London is busy, as always. The pandemic has receded, there are few masks to be seen, most storefronts are rented, and most of the population are gainfully employed. But there’s a gloom hanging over the UK, and not it’s not due to the weather (which has been cold but clear – most of the time).
The UK is a great country and London is a great city. But I’m glad I’m running my small business in the US and not here.
