The economy isn't all doom and gloom
4 min read
Our research shows that the business community is not as deflated as the narrative suggests. But the government must do more when it comes to smaller enterprises.
Since the election, the Labour government has been plagued by accusations of economic “doom and gloom”. Survey after survey hitting the news, declaring that the business community is deflated, if not out of steam. I’m not so convinced.
Business lobby groups have been leaning hard on the Labour government, particularly emphasising how increases in National Insurance contributions and workers' rights could be bad for business. But it's important to remember that it is their job to represent their members. Often these surveys are self-selective, skewed towards bigger firms or particular sectors — and don’t succeed in explaining the reality on the ground. Importantly, they don’t really accord with the real-life experience of the quietly ambitious, quietly positive entrepreneur.
This matters — not least because 99.8 per cent of the business population consists of SMEs. In the Good Growth Foundation’s nationally representative Business Survey of more than 1,200 firms, we set out to provide a more comprehensive picture, and ended up with a more nuanced story than the one that’s been told over recent months.
Two-thirds of businesses expressed optimism about their ability to expand, with 61 per cent expecting revenue growth in the next quarter and 53 pr cent forecasting a boost in profits by May. By nature, businesses try to adapt. They aren’t interested in failing. There is a strong case that many firms are taking a more bullish approach.
But gloomy messaging from the business community in the media has created a divergence between businesses’ perceptions of their own prospects and their outlook on the wider economy. While 46 per cent of firms reported rising demand for their products and services, 54 per cent held a negative view of the economy’s future, with only 27 per cent expressing optimism. This suggests that while businesses are confident in their own ability to navigate the current climate, they remain skeptical about the broader economic landscape. A nervous narrative has taken hold; one in which firms believe in their own resilience but doubt the nation's economic trajectory.
The biggest obstacle to sustained business confidence is uncertainty.
According to our survey, 29 per cent of firms identified it as the primary constraint to growth, with SME’s listing it at a higher rate than larger businesses. This concern underscores the paradox at play: while businesses see opportunities within their own operations, a general sense of economic pessimism could lead to hesitation in investment, hiring, and long-term planning. Economic growth is not just about individual business success — it thrives on a collective sense of sustained momentum.
The government has taken steps to address these concerns.
The chancellor’s January speech outlined measures that have been broadly welcomed, particularly among medium and large businesses. For instance, nearly three-quarters of firms with 50–99 employees indicated that the proposed third runway at Heathrow would directly benefit them. However, there remains a disconnect with smaller enterprises. Only 27 per cent of businesses with fewer than ten employees saw Heathrow expansion as beneficial to them, highlighting a gap in how government policies resonate across different business segments. This disconnect is a crucial concern. While large firms are clear on their role in initiatives such as the Industrial Strategy and the Plan for Change, SMEs are often left wondering where they fit in.
Our recent report, “Mind the Growth Gap”, showed in no uncertain terms that people see themselves and small businesses as the drivers of economic success. But there’s a view that people are not getting the tools, the operating environment they need to do their bit in lifting the economy. Voters want to see an active state getting behind ordinary people keen to fulfil their potential and pursue opportunity once again.
The government must do more to communicate how these initiatives will support smaller businesses, ensuring they feel included in the nation’s economic vision. Furthermore, there needs to be a drive to lower SMEs overheads, creating room for them to grow. High costs are consistently the highest-polled barriers to expansion. By pushing down SMEs energy costs, lowering the costs of commercial space and maintaining current businesses taxes but increasing tax relief for firms looking to grow the government can show they are committed to smaller enterprises.
Ultimately, the government must recognise that confidence in the economy is built from the ground up. While larger firms see clear benefits from infrastructure projects and industrial strategies, small businesses — the backbone of the UK economy — need more targeted support and clearer communication. Business confidence is nowhere near as bad as it seems, but the story of SMEs, and thus ordinary people, must be told to bolster their support.
Praful Nargund is director of the Good Growth Foundation.
