Why SMEs fear hiring new staff in 2017

More than half of SMEs do not plan to recruit in 2017 amid Brexit nerves, Close Brothers research reveals.

Small and medium-sized enterprises are reluctant to take on new staff during 2017, new research from Close Invoice warns, amid nervousness about the prospects for the economy and the uncertainties of the UK’s withdrawal from the European Union.

More than half (51.2 per cent) of the SMEs surveyed in the latest quarterly Close Brothers Business Barometer say they now had no plans to take on staff over the next 12 months.

The large number of SMEs planning to freeze headcount this year underlines the cautious mood now prevailing at many businesses. Even among the minority of SMEs that do anticipate taking on staff, more than one in five (22.9 per cent) businesses say they did not intend to hire permanent employees and would look to temporary workers or freelancers instead.

The big fear for SMEs is the additional cost of new employees when the outlook is currently so unpredictable. Almost six in 10 SMEs (58.6 per cent) says the cost of hiring new staff concerned them given the economic backdrop, including 15 per cent who said their concerns were significant or major.

David Thomson of Close Brothers Invoice Finance warns many SMEs were fearful about what might lie ahead.

‘While the UK’s economic performance during the second half of 2016 was strong compared to other leading economies, many SMEs worry that this may prove not to be sustainable,’ David says.

‘They are reluctant to take the risk of hiring new staff because they are not convinced revenue growth will justify the extra expense of additional employees.’

The uncertainties surrounding Brexit are also weighing heavily on the minds of many SME executives. Almost one in five SMEs (19.2 per cent) report they were hiring fewer new employees in the light of the UK’s decision to leave the EU, against only one in 10 (10.4 per cent) that signalled Brexit had prompted an increase in hiring.

Many SMEs may also have been scarred by the experience of the recent past, with significant numbers of businesses having been forced to let employees go. Almost half (45.6 per cent) of the SMEs in the Close Brother Business Barometer have made redundancies during the past five years.

‘Until we know more about what the UK’s withdrawal from the EU will mean in practice, many SMEs will continue to think twice before taking on new staff,’ Close Brothers’ David Thomson adds.

‘They just don’t know yet whether there will be sufficient work for new employees and having been forced to make workers redundant in recent times, they’re opting to take a wait-and-see approach to hiring.’

Mr Thomson warns the reluctance of so many SMEs to hire new staff could hold the UK economy back over the next few months. ‘The danger is that a lack of confidence becomes a self-fulfilling prophecy.’

‘Our research suggests large numbers of SMEs plan to freeze hiring during 2017, which will mean few new jobs are created and economic growth falters.’

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