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THE Federation of Small Businesses has published its Small Business Index (SBI) for Q1 of 2024 - revealing a record number of respondents expect the tax burden will present a major barrier to growth over the coming 12 months.

While the overall confidence score has rebounded to positive territory at +5 after fluctuating considerably over the past year, small businesses in the North West have identified their main concerns for the coming 12 months as conditions in the domestic economy (62%), consumer demand (33%) and labour costs (28%).

In addition, 26% cited the tax burden as their main impediment to growth going forward. This is the highest-ever score recorded for tax burden in the North West since the SBI began, in Q4 2014. For context, the next highest score for tax was 25% in Q3 2015, and the North West average during this time is 15%.

The confidence score for North West Small Businesses of +5 is a increase from -9 as seen in Q4 2023. This follows the volatility seen across 2023 in the region (with scores of -11, -7, 3, and -9 across Q1 – Q4 2023). Comparatively, the North West is on par with the nationwide average, which also sits at 5 in Q1 2024.

The FSB says that in connection to business conditions, revenue sentiment in the North West remains positive, although it has declined from the previous quarter. In Q1 2024, net revenue sits at 2%.

In all, 42% of small businesses in the North West reported revenue increasing during the period. This remains static from Q4 2023. This quarter, however, more small businesses (40%) reported a decrease in revenue over the last 3 months compared to Q4, where this was 33%.

The net balance of 2%2 for Q1 represents a small decrease from Q4 (9%), although does continue the trend of positive net revenue in the region, following the previous stretch of net negative revenue from Q2 2022 to Q3 2023. The North West is currently among the most positive regions in terms of scores, with the highest being the North East & Yorkshire and The Humber (net 12%).

The outlook for future revenue remains positive in the North West. A net balance of 29% expect growth in profits for the coming quarter. This exceeds previous expectations from Q4 2023, where the net balance stood at 7%. The revenue outlook in the coming quarter for the North West remains more positive than the net national average (which is 22%).

Looking at growth and investment aspirations the FSB has found that overall net growth aspirations have risen from 32% in Q4 2023, to 49% in Q1 2024. This quarter, 61% said that their growth aspirations in the next 12 months were to grow either rapidly (increase turnover/sales by over 20%) or moderately (up to 20%). This has improved when compared to the previous quarter, when it was 52%.

The investment intentions for North West small businesses have declined since the previous quarter, now standing at net 8% compared to the 21% recorded in Q4 2023. Investment expectations in the region slightly underperform the nationwide average in Q1 (which is net 10%).

A total of 28% of small businesses in the North West expect to increase investment levels in the coming quarter, which is similar to the 27% of those who indicate this nationwide. However, looking at the proportion who anticipate decreasing their investment, the North West is ahead of the wider UK (19% in the region, vs. 17% nationwide).

Investment intentions in the North West perform on the lower end compared to other regions. The most optimistic region in Q1 2024 is the East Midlands (net 16%), with the least optimistic being the South West (net 2%).

With regards to employment and wage growth, North West small businesses have decreased headcount, with a net decline in staff levels for Q1 2024 (-10%).

The employment picture over the preceding three months showed that 15% had decreased and 5% had increased staff numbers. The net employment level of -10% for Q1 reflects a return to the negative scores seen in Q3 2023 (net -4%), contrasting the brief return to a net positive score seen in Q4 2023 (net 1%).

Most small businesses in the region had no change in staffing levels in Q4, with just under three quarters (74%) reporting headcount had stayed the same. The net change in headcount of -10% in the North West is lower than the respective score nationwide, which stands at a negative figure of net -4%. Looking ahead, North West small businesses expect a net 17% change in headcount for the next quarter.

In all, 65% of small businesses in the Region increased the average salary awarded over the last 12 months. This is on par with the respective level nationwide (65%). The net change in salary for the North West in Q1 2024 has decreased from Q4 2023 however (55% v 61%).

The current predicted wage growth sees little difference with the figure recorded in the previous quarter, where 73% anticipated wage increases over the next 12 months. In Q1 2024, 74% expect to see salary increases over the period.

FSB North West Regional Chair Holly Bonfield said:- "An uncertain economic climate over the past year has led to fluctuating business confidence, but it is good that it is in positive territory again and very important that national and local government work with FSB to maintain this renewed optimism. While net revenue performance in the North West is positive, and better than most other UK regions, it has declined slightly since Q4 2023. In addition, although more businesses aspire to grow than the previous quarter, investment expectations have fallen notably and underperform the average score across the UK. Conditions in the domestic economy continue to present the main barrier to growth over the coming 12 months, followed by sluggish consumer demand and then labour costs. Significantly, the spectre of tax is looming large over businesses already struggling with spiralling overheads and myriad other issues. Q1 of 2024 has seen the highest score ever recorded for the tax burden in the North West. FSB is fighting for small businesses on this front, as on many others. We successfully lobbied for cuts to self-employed National Insurance, a further freeze in fuel duty and an increase in the VAT threshold in the Budget, as well as commitments to easing the HMRC administrative burden. We are also pleased that HMRC will not, as previously planned, cut its helpline hours for tax queries. However, small business still face serious challenges, including steep hikes in labour and input costs, and we need more to free them to grow and create employment. For example, while keeping the £5,000 National Insurance Employment Allowance for the 10th year in a row is invaluable, it should have been uprated to keep pace with the National Living Wage – particularly if employer tax thresholds remain frozen. The Government must not underestimate the challenges faced by small firms in this difficult economic environment.”