Small firms hit hard by 9.9% inflation rate

Research reveals entrepreneurial companies with fewer than 50 employees are suffering from a higher inflation rate because they cannot negotiate bulk discounts from suppliers.

The annual inflation rate for small businesses is currently 9.9%, almost twice the official inflation rate of 5.1%. Small businesses make up 99% of the 280,000 firms in Scotland.

The research, carried out by Warwick Business School in conjunction with insurance company More Than, shows that vehicle running costs, energy, raw materials and insurance have all risen in the past year. Other problems include delays in payments from customers and falling sales as consumer confidence drops.

Mike Bowman, head of More Than Business, said: "All businesses are facing these cost increases, but small firms have less flexibility to negotiate with their suppliers… and can get hit quite hard."

A spokesman for the Federation of Small Businesses said:

"Members have told us the amount they pay for their supplies and energy costs have all increased. It is a lot tougher for them to grow and take on new staff. And so they are having to work harder and longer hours to get the same results."

The research comes as pressure mounts on the Government to do more to help small businesses, described as the "lifeblood" of the economy by the Conservative party.

Increased fears of recession are making financial support crucial. Lord Mandelson, the Business Secretary, has initiated a Small Business Forum, which will meet regularly to allow firms to challenge banks. He has also warned banks that cooperating with small firms is a condition of the government's 37bn bailout.

There are also signs lenders have raised overdraft rates and banking fees to small firms. The FSB has asked for a 1bn 'survival fund' to help struggling firms make emergency payments, such as VAT bills.

Data released last week revealed the economy has shrunk for the first time in 16 years between June and September, by a worse than expected 0.5%.