MYour wife and I visit London several times a year to see her family and our friends from university. This time we’re back here for the whole month of January, living like Londoners, staying in a rented house, throwing out the rubbish – sorry rubbish – and buying our food from Waitrose. The stay gave me time to observe, talk to people, and walk around, and here’s what I learned: I need to stop complaining about how hard it is to run a small business in the US. It is much more difficult to run a small business in the UK. Especially now.
Imagine running a business where inflation is not 6.5% like in the US, but 10.5%. The cost of living here is driving British consumers to buy less – so much so that a recent survey found two-thirds of them plan to cut back on their spending in 2023. In a nation of shopkeepers, that’s no small thing.
Like the US, unemployment here remains low, so there is still a shortage of workers and a continued demand to retain them, which – combined with rising prices – is forcing business owners to raise wages. So a UK business owner is not only affected by a slowdown in demand, but also by rising costs at the same time and at a higher rate than in the US.
Energy costs also hit people hard. All my friends here have complained that their utility rates have more than doubled this year, despite some help from the government. I’ve seen portable heaters in restaurants by the tables and even our Airbnb host asked us to try to keep the temperature below 17C (62.6F) if possible. The good news is that energy relief seems to be coming, but it’s not coming fast enough.
How has this affected small businesses in the UK? It’s not great.
According to new research from outsourcing platform Fiverr, business owners here report losing an average of £83,000 since the start of the economic downturn, which equates to half their annual turnover with almost one in five UK start-ups and small businesses surveyed, losing over £100,000 since the economic downturn began. Some business owners across the country say they’ve had to “close their doors” because of these higher costs.
Fiverr’s research also found that 92% of UK start-ups and small businesses fear for the future of their business, with almost one in five admitting to being “very scared”. Confidence among UK small businesses has plummeted, with another survey finding a 50% drop in the number of companies planning to expand this year compared to summer 2022.
All this and then there’s Brexit. Perhaps there is an argument that the UK’s newfound freedom to control its economic destiny will work. But obviously there are plenty of people who disagree. Especially small business owners who rely on overseas sales, such as this British bicycle entrepreneur who blames Brexit for a loss of more than £100,000 in revenue, and more than three-quarters of UK companies who say the trade deal is find it difficult to increase sales and grow their business, according to a study by British Chambers of Commerce.
Even when the economy is strong, the UK’s regulatory environment for business far exceeds what we have to deal with in the US.
Most workers who work a five-day week should receive at least 28 days of paid annual leave. The government also requires employers to give their workers extra time off when they are sick. Employers are authorized to provide paid and unpaid maternity leave, as well as make contributions to a retirement, health and liability (workers’ compensation) plan. Taxes – excluding the impact of state taxes – are higher here too, with the top rate in the country at 45% for those earning over £150,000 ($180,000), compared to the top rate in US of 37% for those earning over $523,000.
I am not judging whether or not it is right for the government to demand all these benefits from its business community. All I know is that none of this is required in the US, and that even with all 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 ever. The pandemic has subsided, there are few masks to be seen, most storefronts are occupied, and most of the population is gainfully employed. But gloom is hanging over the UK and it’s not because of 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 run my small business in the US and not here.