New research from Aviva shows that around 10% of small firms in the UK are worried they might have to close this year if trading conditions do not improve.

Aviva surveyed 500 small businesses and discovered that a mere 13% feel positive that the British economy will improve, whilst 28% think that we might drop back into recession.

David Bruce, Aviva’s commercial product manager, said confidence among SMEs is at its lowest since the start of the global downturn and many are now seriously concerned that they will lose their business if the economy doesn’t improve this year.

The FPB was not surprised by these findings and believes the general pessimism is caused in part by the lack of accessible funding for small enterprises. The banks taking part in Project Merlin have so far failed to meet their key lending targets. However, the current economy could offer business owners the opportunity to move into niche markets and high redundancies mean there is a strong pool of candidates to recruit from.

17% of firms are using sales and discounts to keep their business thriving and another 17% have had to resort to permanent price reductions. 14% are looking to cut salaries or benefits, and 9% are thinking about reducing their permanent headcount.

The downturn in demand is affecting nearly 66% of firms according to Lovetts, the commercial debt recovery law firm.

The government has come up with measures to help small businesses, such as the New Enterprise Allowance and the Red Tape Challenge, but these have not brought about an entrepreneurial uprising.

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Umbrella company contractors may be interested to read the CBI’s predictions for the UK economy.

The leading business group predicts that the rate of growth will be sluggish for the rest of this year and GDP will show a modest improvement next year.

Despite the fact that business confidence continues to decline and pressures continue on consumer spending, the CBI expects to see the economy expanding by 1.3% this year. In 2012, it predicts growth of 2.2%. Export growth is expected to pick up but subdued domestic demand will have an impact on imports.

The CBI also predicts modest investment growth of just 3.7% this year, but expects this to improve dramatically to 9.3% in 2012.

John Cridland, the director-general of the CBI, said the UK’s economic outlook had become even more challenging but we can expect to see modest growth for the remainder of this year and into next. The global economy has been hit by various shocks including soaring commodity prices and the Japanese tsunami. There are also uncertainties about the Eurozone debt crisis and the US debt ceiling which erode confidence.

Mr Cridland went on to point out that although we may see a lacklustre economic recovery, the UK will remain on track. The latest GDP figures showed quarter-on-quarter growth of just 0.2% but the third quarter should see 0.8% growth and the economy will continue to grow at between 0.5% and 0.6% until the end of next year.

The chief economic adviser at the CBI, Ian Mc Cafferty, explained that we will see very tough economic conditions for the remainder of 2011 but things will brighten up next year as inflation eases and salaries improve.

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Last week’s GDP figures from the Office for National Statistics confirmed growth of just 0.2% in the second quarter of this year.

Various one-off factors have been blamed for the sluggish growth, such as the royal wedding, April’s warm weather and the Japanese tsunami.

George Osborne, the Chancellor of the Exchequer, said it was positive news that the British economy is still growing and jobs are being created. The UK is also seeing an increase in the number of start-ups, which should benefit umbrella company contractors. 396,000 new firms started up in 2010/11, up from 362,000 the previous year.

Kevin Walmsley from Wilkins Kennedy said that recessions present opportunities and the increase in start-ups shows that there are still entrepreneurs who are confident that they have a strong business model.

However, small businesses are being crippled by rising costs and more than 50% of them think their business will fail if the situation continues. Over the past five years, overheads have increased by 22.8%.

A survey by the CEBR and Make it Cheaper has discovered that rising costs are the most significant threat to 78% of small businesses. In fact 89% said the UK is an unbearably expensive country in which to conduct business.

67% of small firms said their profit margins have been eroded by increasing costs, 46% have had to increase their prices and 22% have reduced their headcount. 74% of the UK’s small firms think that rising costs have damaged their ability to grow and 86% say this is damaging the economic recovery.

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The Office for Budget Responsibility says that tougher austerity measures and higher taxes are needed if Britain is to achieve long term fiscal sustainability.

The UK has an ageing population that is putting pressure on the long term sustainability of public finances, according to a report published earlier this month from the OBR. Over the next fifty years, the number of people in retirement will increase sharply, whilst the number of working age individuals will decline. Currently we have 4 people working to support one pensioner, but that ratio will soon become 2:1.

Analysts predict that the UK population will reach 75 million by 2060, putting additional pressures on the cost of pensions and health care. Without substantial policy changes, the OBR warns that UK net debt levels will rise above 100% by 2060.

In order to bring the debt level down to 40%, the government will need to find an extra £22 billion. The key to sustainable public finances lies with public health but unless NHS productivity improves the UK’s debt levels could rise dramatically.

The OBR report also showed the financial services industry contributed approximately £40 billion of GDP in tax, in 2007. However, it is thought the sector’s contribution will drop to about £34.6 billion if tax rates remain unchanged. The OBR therefore expects the UK economy will rely less on financial services in future years.

The British Chamber of Commerce’s chief economist, David Kern, said the report suggests that we are unlikely to see a return to the level of public sector spending witnessed before the recession. The UK has to adapt its ambitions to more limited resources and acknowledge that the private sector is responsible for creating wealth through greater productivity and increased growth.

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It might come as no surprise to umbrella company contractors to learn that small businesses are losing faith in the UK’s banking system.

Research recently released by the British Banker’s Association shows that owners of small businesses are reluctant to visit their bank when they need finance. Figures show that 670,000 firms in the UK have needed a loan in the last 12 months but not apply for one. Furthermore 18% of business owners say they will only apply for funding in the next three months if the UK economy improves markedly.

The FPB claims the cost and hassle of preparing an application is a major deterrent and calls for moves to restore faith in UK banking institutions.

Alan Jackman, the senior policy adviser for the FPB, says this report clearly shows that small firms are experience a confidence crisis when it comes to the banking system in the UK. We need to see practical measures to restore people’s faith in the banks, but at the same time we also need to give alternative, innovative funders the opportunity to break the high street bank’s domination of the finance market.

Meanwhile, the FSB says it is the smallest businesses that suffer most from the lack of bank lending. John Walker, the Federation’s national chairman, said small firms are reluctant to approach the banks because they think they will be turned down, and even if they are granted a loan, it will be on terms that are not favourable.

He pointed out that the BBA’s survey clearly demonstrated that businesses with less than ten members of staff are most likely to be turned down when they first apply for a loan.

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The Work Foundation recently said that the UK’s future prosperity would only be secured if the knowledge economy provided jobs and balanced growth.

Its report lays down a detailed picture of how we can secure a balanced and sustainable economy by 2020. The plan explains that although some positive steps have been taken, the government has not yet established a reasoned approach towards the knowledge economy. Some policies, such as enterprise zones and the reduction in corporation tax, will do little to help continued growth.

Instead, the government must focus on key priority areas, like ensuring we have a ready supply of highly skilled workers passing through the higher education system and improving local economic conditions so that high growth firms can thrive.

Charles Levy, a senior economist and lead author of the report, said the way we work has been transformed through the knowledge economy and we cannot maintain current consumption habits and wage levels without it. Blanket reforms and sweeping tax breaks will not give us the stable, lasting growth the UK requires to emerge from the recession as a stronger and more stable economy.

The government has every reason to be concerned about the lack of highly skilled workers in the UK, especially after a new survey found that 31% of employees are thinking of moving abroad in search of better career prospects.

86% of those considering emigrating say they are looking for a better work/life balance, while the lure of a higher salary is the attraction for 83%. More than half of those surveyed in the 18 -24 year old age bracket and 42% of people aged between 25 and 34 are thinking of emigrating, primarily for better career prospects.

The most popular countries are Australia and New Zealand, favoured by 70% of those looking to leave the UK. Stephen Hughes from Currencies.co.uk, the brokerage that conducted the study, said the results show younger people have lost faith in the UK employment situation and the situation could be set to get worse in the future.

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Contractors are unlikely to be surprised to hear that British employees in the 18 to 29 age group are suffering from high levels of workplace stress and they believe they are been forced to bear the brunt of the credit crisis recovery.

GfK NOP Engage, the market research agency, discovered that 40% of 18 to 29 year olds are stressed at work, compared to 25% of those aged above 60. Two fifths of young workers say their employer justifies increasing their workload because of the tough economic climate.

This increased workplace pressure is negatively impacting on young workers’ health and wellbeing, with many reporting that they are concerned about their work-life balance.

The report studied 29 nations and found that the UK ranked 17th in the way employers engage with young workers. Macedonia, Mexico and Turkey were among the countries that ranked higher than the UK!

GfK NOP Engage director, Sukhi Ghataore, said businesses that look on young employees as cheap and expendable may live to pay the price.

A recent study by the CMI suggests that it’s not only young people who are suffering from work-related stress. The Institute surveyed 2,000 employees, of all ages, and 55% said their manager does not possess sufficient ability or the right level of confidence to be successful at his or her job.

40% said their boss’s behaviour added to stress levels and a worryingly high 74% have to make decisions that they do not feel qualified to make.

61% of employees have wanted to ask their manager for assistance in decision making recently but say they have not been given the opportunity. This had led to 23% frequently worrying about making work decisions, 32% have lost respect for their boss and 10% have had to cover up their mistakes.

It is obvious that managers have to do more to fulfil the needs of their teams if UK PLC is going to thrive.

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Ed Balls, the shadow chancellor, recently called on the coalition to implement a temporary emergency reduction in the VAT rate to jump-start the economy and boost consumer confidence.

During a speech outlining the opposition’s economic policy, Mr Balls said a cut in the VAT rate would immediately impact household budgets, giving umbrella contractors more spending power. Acting now is a better option than hoping for the best, he continued.

Ed Balls told the LSE that Labour’s VAT reduction contributed to a boost in growth and as a result the deficit was £21 billion lower than had been expected. If Osborne reversed his increase now, he would be helping people who are struggling to cope with rising prices and small businesses that are seeing reduced demand.

Retail sales in the UK fell by 1.4% in May after a 1.1% increase the previous month. However, April was unusual in that we had two consecutive four day weekends and people were spending on royal wedding memorabilia and street parties.

David Cameron countered Balls’ demand by saying that cutting taxes would increase the fiscal deficit.

The previous government did reduce VAT temporarily in December 2008. The Conservatives later said the 13-month reduction was an expensive failure and as soon as the coalition came into power, George Osborne announced an increase in the VAT rate to help tackle the deficit. The Chancellor says he does not intend to reduce the rate again, saying the increase to 20% is a structural change to the UK’s tax system.

There are now concerns that high earners might leave the UK to escape the high burden of taxation.

UHY International looked at tax data from 19 countries and discovered that Britain had the seventh highest tax rates for people earning in excess of £122,000 and those earning less than £15,250 per annum.

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The latest statistics from the government show that UK bankruptcies have fallen significantly over the last 12 months.

The Insolvency Service report shows that there were 12,539 bankruptcies in Q1 this year, a drop of 31.3% on the comparable quarter last year. However, this is still a slight increase on the 12,028 bankruptcies lodged in the final quarter of 2010.

Personal insolvencies, including those attributed to umbrella company contractors, also dropped by 15.5% year on year, to 30,162, and IVAs fell 8% to 10,835 in the first quarter of 2011.

Louise Brittain, a partner in the insolvency team at Deloitte, said it was a matter of concern that individuals do not seem to be turning to the formal process for advice on handling their debts. Personal debt is still crippling many households across the UK.

She went on to point out that economy is still fragile and we cannot bank on these reductions continuing for the rest of the year. Small firms in particular will feel the effects as personal guarantees on business debts become due and the true impact of the VAT increase is felt.

Pay Boyden from PwC said there was evidence to suggest that households are currently struggling with every day financial pressures like utility bills as opposed to their existing levels of debt.

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David Cameron caused a certain amount of controversy last week when he promised to reduce the number of immigrants coming to this country to “tens of thousands” per year.

Vince Cable, the business secretary, criticised the PM saying this was a Tory government target rather than a coalition policy. He also felt that Mr Cameron’s comments risked inflaming extremism especially as they were made in a speech to Conservative activists.

Ed Miliband, the labour party leader, said ministers should stop fighting amongst themselves and get a grip on the problem of immigration.

In the Conservative election manifesto last year, the party called for steps to revert net migration to tens of thousands, rather than hundreds of thousands, per year. However, the agreement struck by the Tories and Lib Dems when they formed the coalition did not refer to specific numbers.

In his speech in Southampton, David Cameron pointed out that communities have been affected by immigrants who are unable to speak English and do not wish to integrate. This has caused a level of disjointedness and discomfort in some areas. Many people have experienced this and it is unfair not to address the problem, he continued.

Mr Cable has on several occasions spoken of the dangers to the UK economy of an immigration cap and he was quick to deny that this new policy was coalition policy.

Nick Clegg, the Lib Dem leader, took a slightly different stance on the issue saying he was proud of the work the PM and Cable have done on the “sensible” coalition immigration policy but the Lib Dems would not have used the same language as Cameron did in his speech. He believes the PM chose his wording because he was speaking to an audience of Tory supporters in the run-up to May’s elections.

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Umbrella company contractors may already be aware that some industry sectors are doing better than others. Prospects in the IT and telecoms sector for example are blooming whilst public sector opportunities are diminishing fast for obvious reasons.

The CEO of Work Wise UK, Phil Flaxton, said that unemployment figures are increasing and indications from the CBI and the TUC suggest this trend will continue.

However, he believes that organisations could turn to contractors or part-time workers in order to improve efficiency. Especially for smaller enterprises, it is probably more financially viable for them to take on a temporary or part-time worker rather than hiring a permanent member of staff. The key here being flexibility, he added.

Meanwhile, Robert Walters, the recruitment specialist, has warned that employment prospects in the financial sector remain uncertain.

A spokesman from the company said that last year’s hiring activity was a one-off. The banks made drastic cuts during the global economic crisis and they needed to hire a lot of staff quickly once the crisis was over.

There will be some movement but it could be delayed. People are confused over what they are worth and they don’t know whether they are being offered a good deal because it has become harder to compare. This uncertainty has led to people at senior levels devoting more time to decision making.

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The economic recovery in Scotland faltered during the bad weather last December, according to Lloyds TSB’s Scotland Business Monitor.

45% of Scottish firms saw their turnover decline in the quarter ending February this year, while 30% reported no change. Only 25% of companies saw turnover increase which means the result was the most negative for over a year. Consumer confidence in Scotland is still positive but at a low level and spending is constrained.

There’s good news for IT contractors north of the border. The Bank of Scotland’s Report on Jobs shows that demand for IT contractors witnessed the fastest increase in demand in the first month of this year making the IT and computing sector in second place on the demand list behind medical and nursing.

The chief economist at the Bank of Scotland, Donald MacRae, said the economy in Scotland is recovering from the winter bad weather. The Barometer has now improved for five consecutive months posting a reading of 55.2 last month, its highest level for over three years.

All eight Scottish sectors saw an increase in demand for contractors and permanent employees, and there was a noticeable increase in the number of vacancies in engineering and construction.

Opportunities in the Scottish gaming industry are also set to increase next year after Outplay Entertainment announced it will create 150 new jobs in Dundee. These will include roles for technical developers, producers and artists.

The founders of the firm will work with local recruiters and hope to source talent from the University of Albertay, a learning institution with a proven record for producing talent for the gaming industry.

Douglas Hare, Outplay Entertainment’s chief executive said Scotland has a reputation as a creative, inspired and innovative nation, with the right people, skills and support all in the right place.

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