The cost of doing business 2022q2 Data from the Small Business Price Index

Small businesses with less than 50 employees employ 12.9m people (48 per cent of total private sector employment) and account for 36 per cent of private sector turnover. The Small Business Price Index (SBPI) provides an indication of the cost of doing business among this critical group of firms.

The SBPI suggests that small business costs increased more rapidly in 2022q2 than in any period since the start of the SBRI series in 2008 (Figure 1). Small business costs rose 4.4 per cent in 2022q2 alone, following a 4.3 per cent increase in 2022q1. Both represent a higher rate of small business cost inflation than at any period since 2008.

 Source: ERC SBPI

The SBPI like other price indices such as the Consumer Price Index (or CPI) is based on a combination of data on the prices of individual expenditure items and detailed information on the spending consumption of small firms (see a list in Annex 1). In analysis we can differentiate between the cost profile of micro and small enterprises and different types of micro and small businesses.

Business costs for small (10-49 employees) and micro businesses (1-9 employees) have tended to rise and fall together over the period since 2008 (Figure 2). In recent quarters, however, cost rises have been greater for micro-businesses: micro-business costs rose 4.5 per cent in 2022q2 compared to 4.0 per cent for small firms. This difference is due to their different cost structure.

Source: ERC SBPI

The sharp increase in costs evident in late 2021 and through 2022q1 and 2022q2 for micro and small firms is equally evident in manufacturing and services sectors (Figure 3). For both groups of firms current cost increases are at, or above, the highest level since 2008.

Source: ERC SBPI

 Micro and small businesses are a diverse group, and in Figure 4 we report the SBPI for three significant sub-groups of firms – shops, home-based businesses and contractors who are likely to be mobile. There is a common general trend in cost changes over the 2008-2022 period (Figure 4). Shops and contractors are being hit particularly hard by current cost rises with cost increases of 5.1 per cent and 4.2 per cent over 2022q2 alone. Home-based businesses faced a marginally lower rate of cost inflation of 3.3 per cent over the same quarter.

Source: ERC SBPI

The next update of the Small Business Price Index should be available in mid-November and will cover business costs during 2022q3.

Table 1: Small Business Price Index: 2022q2: Summary 2017-22 

 Annex: The Small Business Price Index

The Small Business Price Index (SBPI) summarises information on twenty of the most important expenditure items for small businesses with less than 50 employees. Price changes for each item are taken from series published by the Office for National Statistics (see below). Expenditure weights are based on spending data from 500 small firms gathered during July and August 2008.

The expenditure items covered by the Business Inflation Guide are:

A telephone survey was conducted during July and August 2008 to establish the most important expenditure items for small businesses. The sampling frame was obtained from Dun and Bradstreet and quotas were imposed on responses to ensure results were robust by firm size, industry, and region. Samples excluded agricultural businesses (Division 01/05) and those in mining and quarrying (Div 10/14). Interviews were conducted with the owner or another person in a position to provide the cost data required (e.g., accounts department). Final responses included data from 500 small businesses with responses being weighted to correct for response bias and quota sampling.

No specific price data exists for small businesses, so the Small Business Price Index relies on national price indices for specific items. The majority of price data is taken from publications by the Office of National Statistics (ONS) including: the Services Producer Price Index (SPPI), the Consumer Price Index (CPI) and the Producer Prices Index (PPI). Source information for each price index used is given in Table A1 below with individual index values in Table A2 and Figure A1.

Table A1: Price Indices – Sources

Table A2: Price Indices Summary Values

(percentage change per quarter)

Stephen Roper, Director, ERC

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