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Innovation seeing small firms through the recession

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Many small businesses have been able to negotiate the recession by creating new products and services, but still need support through tax cuts, a major new survey has claimed.

The survey, carried out by the Federation of Small Businesses (FSB), is reported to be the most extensive of the small business sector conducted during the recession.

According to its findings, more than half of businesses have resisted the worst of the recession by innovating, creating new products and services.

The FSB-ICM ‘Voice of Small Business’ Annual Survey 2009 revealed that 53 per cent of businesses introduced new or improved products and services last year, and 51 per cent intend to continue innovating next year.

Some 27 per cent of the survey’s 10,000 respondents said profits had gone up over the past 12 months, while almost a third (30 per cent) reported increases in sales volumes over the same period.

Finance, however, continued to pose problems. A third (32 per cent) of respondents who have borrowed in the last year said that they had been charged more, with rates typically increasing by more than one percentage point for the majority.

Some 31 per cent identified a cut in employers’ national insurance as likely to boost their prospects in the recession.

Using the savings from such a tax cut, 42 per cent said they would expand their business, 35 per cent would divert the funds to capital investment, 32 per cent would increase their marketing budgets, 23 per cent would invest in new services and products, and 19 per cent would take on more staff.

Another third said that improved and fairer lending from the banks would also help.

The FSB has argued that the UK’s banking system does not currently provide the channels for finance that small businesses need but that the right financing structures must be in place if the economy is to recover strongly.

Specifically, the FSB wants the government to introduce a renewed stimulus package of targeted measures aimed at nurturing the tentative growth in the small business sector.

The package would include an extension of the Enterprise Finance Guarantee when it runs out in March; the suspension of tax increases, including a freeze on employers’ NICs and a NICs rebate for new jobs in small businesses; and alternative routes to finance for small firms, including a Post Bank as well as a Regional Stock Exchange.

John Wright, the FSB’s national chairman, said: “With half of businesses expecting to expand their client base and one in five intending to employ more staff in the coming year, this is no time to pull the support for this vibrant sector, which is at the heart of economic growth.

“The FSB is calling for a renewed economic stimulus to help small businesses continue to create jobs, get access to crucial finance, innovate and start up new businesses, to get us squarely on the road to recovery.”