Greg Carter reviews the last year’s impact on business and what companies should expect in the next 12 months.


2015 was a surprisingly good year for small businesses. While many of these trends are likely to continue, there are a number of areas to watch as you grow your business in 2016.

Why 2015 was a great year

The Conservative party formed a majority government in May

The key word here being ‘majority’. Regardless of your political persuasion, the key concern of all businesses in the run up to the last election was the uncertainty caused by a hung parliament.  Right up until the exit polls on May 7th this was considered the most likely outcome, but was thankfully avoided. We’ve ended up with a relatively strong Conservative government, keen to take the centre ground. While the National Living Wage caused some concern this should be largely offset for smaller businesses with the increase in the employer national insurance allowance to £3,000 per year, along with future falls in the corporation tax rate.

The economy was one of the strongest in the G7

Despite the headwinds of fiscal austerity, collapsing commodity prices and the ongoing Euro crisis, Britain remains one of the fastest growing large economies in the world. The latest OECD forecasts put Britain level pegging with the USA at 2.4 per cent real annual GDP growth, creating a robust environment for business growth.

Alternative lenders became a dominate force in business finance

2015 was the year alternative finance providers came to dominate small business lending. The Liberum AltFi Volume Index UK shows nearly £1.2 billion in small business lending in 2015 representing annualised growth of 119 per cent. Alternative lenders are starting to become the lenders of choice for SMEs, with Funding Circle third behind RBS and Lloyds in terms of volume of new business loans.

Apprenticeships received a huge funding boost

The 0.5 per cent apprenticeship levy was an unwelcome announcement for big businesses in the Autumn Statement and is set to raise £3 billion annual tax revenue from 2017.  However, the Federation of Small Businesses reported in September that skills shortages were reported by over a third of SMEs. This new levy will fund 3 million apprentices over five years, helping to close that gap but with the cost borne by larger firms.

Cloud accounting software made huge inroads, with more to come

SaaS accounting platform Xero announced it has reached 100,000 licences in the UK, nearly reaching Sage’s reported total of 130,000 users. A study by PANALITIX reported that 11 per cent of UK firms are using cloud accounting packages, with accountants reporting that they expect that to increase to 35 per cent in 2016.  Firms on cloud accounting enjoy multiple productivity benefits, including automated bank data feeds and e-invoicing, helping to improve financial controls and gain access to finance.

What to watch out for in 2016

The EU referendum distracts from real business issues

David Cameron is aiming for an early referendum in June 2016, although the referendum bill allows him to put it off until the end of 2017. This means potentially another year and half of the political cycle being dominated by questions on EU membership.

With more than £400 billion of trade with the EU, SMEs are understandably concerned about the consequences of a British exit, or Brexit, from the EU. However, even if the public votes to leave, it seems unlikely Britain would not remain in the European Economic Area (with exactly the same fundamental freedoms as EU membership!). The reality is that the EU referendum is nothing more than a sideshow distracting from the real issues facing SMEs.

Price deflation hurts profit margins, just as low unemployment starts to drive wage inflation

With the rise of the National Living Wage to £7.20, wage inflation will start to bite in 2016, putting a considerable strain on service businesses. With inflation forecast to stay low, businesses will continue to face difficulties in raising prices, meaning that profit margins will likely suffer.

Finance providers drive borrowers into expensive facilities

With the fall in traditional bank lending since the financial crisis, asset based finance has grown to £19.3 billion. While unlocking considerable finance, this comes at a cost. A recent campaign by lending platform Growth Street has revealed that seemingly standard pricing for borrowing facilities can have APRs of up to 90 per cent when all the hidden fees are included. Furthermore, with the SBEEA referrals scheme due to start in 2016, the lack of a clear and transparent means of comparing pricing makes it likely more businesses will be pushed into expensive facilities.

Auto-enrolment pension regulation brings unwelcome cost and distraction

Stemming from the ‘nudge’ school of public policy, auto-enrolment is liable to cause chaos for SMEs as firms with fewer than 30 staff are required to offer a pension scheme from January 1 2016. With fines for non-compliance and few pension providers willing to deal with small clients, SMEs face a potentially expensive, confusing and above all distracting double bind. Worst of all, just as firms pay for this new set of regulations, the government has committed to completely overhaul pensions again in 2016!

Cloud accounting brings an unwelcome storm

The move to the cloud offers many opportunities for small business accounting, but there are some potential storms on the horizon.  While data security is high on the feature list for most cloud accounting platforms, the profit motive is never far away.  With fierce competition for customers keeping headline prices low, be sure to watch out for platforms looking to monetise your data in order to raise their revenues.

Greg Carter is founder of Growth Street.