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Press Room

A Tale of Two Decades For Small Businesses
Economy and red tape top small business problems
(20 March 2006)

Small businesses have long been the lifeblood of the economy and have been at the frontline of the business cycle and any structural economic changes over the last 20 years. Their views have been tracked by the NatWest SERTeam/SBRT Quarterly Survey of Small Business in Britain over this time.

For the last 2 years, small businesses report that government regulations and paperwork has been the biggest problem facing them with 19% citing this as the biggest barrier to their growth and success during 2005. However back in 1986, red tape was much further down the agenda with only 8% believing it was their biggest problem.

Interest Rates were the big obstacle back then. Currently only 1% state that it affects them more than any other factor, compared with 24% in 1986, and unsurprisingly, 31% in 1989. As expectations of a change in government became apparent in 1996/1997, interest rates were seen as much less of a problem (1%) and issues like late payment from debtors (12%) and competition (8%) became more prominent.

Interestingly, the total tax burden saw one of the biggest changes in the last 20 years in the late eighties/ early nineties. The percentage of businesses citing tax as their biggest problem fell from 18% in 1987 to 4% in 1990. In the 1988/1989 tax year, the top and basic rate of income tax was reduced, particularly the highest rate, from 60% to 40%. Small companies corporation tax also reached a low of 25% that year.

In the 1980s and early 90’s, interest rates and the economy were regarded by small businesses as the number one issue, while more recently, they regard government regulations and increased paperwork as their key challenge. Whenever the economy picked up however, entrepreneurial small firms began to experience problems with finding skilled employees.

Andrew McLaughlin, Group Chief Economist, said: “Britain’s small businesses are the engine room of the economy and are often the first to feel the pressures of any cycle. That said, it is clear from these results that the environment for small businesses has benefited enormously from the fact that we now have a much more stable, less volatile economy with lower interest rates and inflation than in the past. This shows up clearly in our survey with these concerns no longer registering as important. This reflects the fact that Britain is now rated number one in the world for economic stability - a superb backdrop for business investment.

"The main concern now of course is the burden of regulation and it is clear that both Government and business are now focussed on the need to fix Britain's productivity record and reducing such burdens would clearly help. We have to maximise our profitability and output from the capacity that we have and it is not just about government - individual businesses must focus as well on what they can do to get costs down and profits up."

Notes to editors:

  • The NatWest SERTeam Quarterly Survey of Small Business in Britain is carried out by the Small Enterprise Research Team, an independent charity based at the Open University Business School.
  • Copies of this and previous surveys are available at a cost of 40 each or 120 for one year’s subscription from Small Enterprise Research Team (SERT), Open University Business School, Walton Hall, Milton Keynes, MK7 6AA. Tel: 01908 655831 or www.serteam.co.uk
  • The survey has been running for over 20 years and is a leading barometer for measuring the challenges and issues facing small businesses over time.


Main Problems (Annual averages)
Interest RatesLack of skilled employeesTotal tax burdenGovernment regulationsCompetition
198522%5%15%13%11%
198624%7%17%8%11%
198722%10%18%7%12%
198821%15%15%7%12%
198931%14%9%6%6%
199029%7%4%5%3%
199118%3%5%5%3%
19929%2%6%7%3%
19932%4%5%9%4%
19942%5%7%11%6%
19952%5%6%8%7%
19961%6%6%8%7%
19972%9%6%11%8%
19984%9%6%9%8%
19991%10%7%13%7%
20001%10%7%16%7%
20010%12%8%15%6%
20021%10%6%15%7%
20031%8%7%14%7%
20042%9%8%17%8%
20051%9%8%19%7%