As the recession starts to bite it is becoming more and more obvious that the tax changes over the last decade are starting to really bite into the small business sector. More and more entrepreneurs are suggesting that times are getting harder, money is tighter and costs continue to rise despite the many promises to look after the sector. Let us not forget that the small business sector is a main part of a success economy, something which was evident when the economy was doing well, but it is a sector which often exists on thin margins and inadequate funding. So what happens next?

Despite promises that the economic boom and bust cycle of the past was over we have seen a sharp return to old ways in the light of the credit crunch. Those who thought that boom and bust scenarios had disappeared forever are quickly realising that this is not the case. Human nature will always ensure that in the good times we all become a little greedy and in the bad time we batten down the hatches and keep our money in our pockets. For anyone to believe otherwise would represent a great leap of faith!

Successive UK governments have found it very easy to hit the small business sector with yet more red tape, VAT and other tax rises over the last decade with the economy rising and nobody really concerned with the fact tax charges were rising and extra expenses being heaped on the sector. Now that we are seeing demand dry up and sales harder to come by it is only just starting to hit home with many business people that their costs and expenses are very top heavy.

The current government are unable to assist with any reduction in taxes because of the dire state of the UK balance of payments – indeed the Treasury announced that in the face of common business logic they will borrow more and more money to spend their way out of the UK recession.

For many years the UK has had a very buoyant small business sector, and while this will not disappear over night, the chances of a sharp rebound in the sector seem fairly small. Indeed when we eventually move out of the recession into the good times again, many small businesses will suffer from funding issues and a lack of liquidity with which to expand their business.

The name of the game for the small business sector over the next couple of years at least will be to reduce their cost base, keep investment to a minimum and just get through the bad times. At some stage they will need to introduce significant marketing expenditure to the equation, but the time for that is still some way off.

Only now we are seeing the catastrophic results of gradually increasing small business expenses and taxation, which went unnoticed by many in the good times, but are really starting to hit home in the bad times!