Private business purse strings still tight

Privately held businesses (PHBs) in the UK reduced the number of their employees significantly over the past year with many planning to freeze pay over the next 12 months, according to the latest International Business Report (IBR) survey from accountancy firm Grant Thornton.

The survey of 500 UK PHBs (unlisted companies including family, entrepreneurial and SME businesses) reveals that 49% cut their workforce over the year compared to 24.7% in the previous 12 months. This equates to a -30% balance in 2010 compared to +15% in 2009.

PHBs in the South West, West and Wales experienced the greatest reduction in employees of all the UK regions with 62.5% of PHBs reducing headcount – a big rise on the 27% reporting cuts the year before. 52.9% of PHBs in London and the South say they reduced staff numbers over the year (24% previously), while in the Midlands 51.4% responded similarly (28% before).

Over the next 12 months, 44% of UK PHBs do not plan to offer a pay rise but only 5% say they will actually reduce the pay of their staff. 39% plan to increase salaries in line with inflation.

David Campbell, head of privately held businesses and regional managing partner at Grant Thornton, said, "It's still tough out there for private companies in the UK with many facing severe financial pressures and forced them to reduce headcount to help stay afloat.

"With just under half of privately held businesses across the UK reducing staff numbers over the year, there is a clear weakness in the current labour market. The significant jump in the number of businesses that have reduced their headcount is very concerning, particularly if the trend continues.

"A reduced headcount for businesses will no doubt have a knock-on effect on household incomes, slowing the country's economic recovery. With growth of just 0.1% in the fourth quarter of 2009, it is clear we have a long way to go."