Small firms in rural areas face a unique set of challenges that will continue to stunt their growth, unless policymakers step in to make serious change, a new Federation of Small Businesses (FSB) report shows.

The Growth Belt: Supporting Rural Small Businesses highlights the way rural businesses are struggling against a backdrop of mounting energy costs, poor transport links, and unreliable broadband.

It also emphasises the diversity and ambition rural small firms have – and how rural areas hold enormous potential for businesses to thrive and contribute to the wider economy.

The Government’s 10-point plan for rural productivity from 2015 has also made little progress, leading to £43billion in lost economic contribution – but FSB’s report provides an opportunity to reverse this.

Findings include on average through 2022, quarter-on-quarter:

• 43% of rural small firms planned to grow, compared to 49% in urban areas.
• 37% of rural businesses reported more than a 10% increase in their operating costs.

The report also highlights the impact of poor broadband connectivity in rural areas:

• 32% of rural firms report issues with internet reliability, compared to 17% of urban businesses.
• 14% say speeds affected their ability to contact customers.
• 11% say poor connection reduced the competitiveness of their business.
• 5% say this led to a loss of business sales.

Recommendations to address the ‘rural deficit’ include:

• The Government should update the Universal Service Obligation (USO) minimum requirements for both upload and download speeds.
• The basic VAT taxable turnover threshold should be raised from £85,000 to £100,000 to encourage growth rather than literally discouraging it, amid anecdotal evidence of small firms scaling back activity to avoid the risk of crossing the VAT cliff-edge. This frozen threshold has remained the same since 2017, despite soaring inflation.
• Take more hard-working, potentially growth-creating small firms out of Business Rates by increasing England’s Small Business Rate Relief threshold to £25,000 from the current £12,000.
• UK Governments must deliver the necessary charging points for electric vehicles by 2030 in rural parts of the UK.
• Councils in England should appoint Local Business Champions – either elected members or senior management – to take clear responsibility and accountability for business engagement and funding applications. This is particularly crucial as Local Enterprise Partnerships (LEPs) are becoming more urban-focussed in areas where there is an elected mayor, and funding risks are on the horizon.

On energy, 18% of rural based small firms have seen their energy costs triple or worse within the space of a year.

This comes two weeks after the Energy Bills Relief Scheme (EBRS) came to an end, which gave firms breathing room to cope with soaring energy bills. To help combat this, FSB is calling for energy providers to allow small and vulnerable firms who entered into a new energy agreement during the high-cost wholesale energy period to ‘blend and extend’ their contracts – effectively, the right to renegotiate a sky-high fixed-term early - to reflect the much lower wholesale energy prices currently available.

FSB National Chair Martin McTague said:

“Our research highlights how rural small firms are the bread and butter of their communities, full of diversity and ambition. They provide local employment opportunities, drive innovation, and generate economic growth.

“But after decades of promises from the Government, inadequate transport and poor digital connectivity are still putting these rural firms at a disadvantage. This hinders their potential to contribute even more to a sustainable and thriving economy. The VAT threshold is a barrier to growth for many, and charge anxiety and the need to use off-grid fuels means that the transition to net zero needs attention.

“Our report offers concrete, feasible solutions to narrow the productivity gap and unlock these rural small firms’ full potential – not just for now, but for generations to come. The Government has the power to create a more sustainable and resilient economy that benefits everyone, no matter how small or how large their rural community is.”

Click here to download the full report