Nicky Kildunne, FSB Development Manager for Hampshire, Dorset and Isle of Wight said: “There’s no way to sugar-coat these figures.”

The Small Business Index (SBI)’s headline confidence figure in the final quarter (Q4) 2022 fell to -46 points, down from -36 points in Q3 2022, and the lowest such finding since Q4 2020, when it was -49 points.

In several individual industry sectors, the confidence reading was particularly low, with retail businesses registering a finding of -83 points, and hospitality firms coming in at -71 points.

This is particularly troubling during the traditional during the ‘golden quarter’ for consumer-facing businesses such as shops, bars, and restaurants says the FSB.

More positively, the construction (-19 points), IT and technology (-25 points) and manufacturing (-39 points) sectors were more upbeat than average, albeit still in negative territory.

More small firms reported a drop in revenues over the previous three months (43%) than reported a rise (33%), and their outlook for the next three months reflected this as well, with 44% expecting to see a fall in revenues against three in ten anticipating a rise (29%).

The proportion of small businesses which saw employee numbers fall (16%) outweighed the share, which gained staff (10%) over the previous three months, although the employment outlook for the next three months was more positive, with one in seven small businesses (14%) expecting to increase their staff numbers against around one in 10 (11%) expecting to see a fall.

Inflation continued to take a toll on small businesses, with nearly two in five saying costs were significantly higher (38%) than in the same period a year prior.

Utility bills, including energy, were cited by over three in five small firms as a driver of their change in costs (61%).

Late payments are still holding back a significant number of small firms, with three in 10 small businesses (30%) saying their payment situation had worsened over the previous three months.

Kildunne added: “Small businesses’ confidence is at its third-lowest level since we started tracking it nearly a decade ago. But business owners are resilient and where there is a will, we will find a way through.

“Clearly, falling consumer spending, inflation, and high energy bills are all taking a toll, and poor results after the golden quarter are particularly disappointing – but this should also be a time to grasp the nettle and be decisive in finding more ways for the economy to grow, which is why we have drawn up a plan of action for the government to implement.

“Small businesses are always the engine room of any economic recovery. The more rapidly small firms pull through, the more rapidly we can all recover.

“Helping more people into work, tackling late payment, driving energy efficiency, powering R&D and getting more people to start up on their own are all initiatives that will make a real difference to the economy – just as small business owners individually will continue to demonstrate the ingenuity they showed during the pandemic to find new markets and new ways of working.

“Small firms are a fantastic national resource of innovation and creativity – especially if given the right conditions to flourish. These results are incredibly worrying, yes, but they are not the final word.”

FSB’s plan to help small businesses:

1. Tackle late payment once and for all, by making the audit committees of large corporates responsible and accountable for supply chain payment practices, with a legal requirement that payment times and conditions be published in annual reports.
2. Address recruitment troubles by taking action to help people access affordable childcare, creating a ‘Kickstart’-style scheme to help more people kept out of work through health problems to access work, and bringing in skills bootcamps for the over-50s.
3. Introduce a Help to Green voucher with a suggested value of £5,000, to be used by small firms to invest in green improvements to their premises, such as a heat pump, better insulation, or solar panels. This will stimulate the economy, cut emissions, and reduce small firms’ energy bills at the same time.
4. Promote small businesses’ investment in R&D by reversing the cut to R&D tax credits brought in at the Autumn Statement, and reduce the complexity within the application process so small firms can navigate it without the need to hand over a large cut of any relief they gain to intermediaries.

Reform the way taxes are levied to help boost small firms – increasing Small Business Rate Relief to £25,000 in England and raising the VAT threshold from £85,000 to £100,000 to help the self-employed work more hours.