Despite the booming economy, many small firms are restricted from realising their true development potential because of increased competition, high taxation and labour costs. A survey carried out by the Small Firms Association (SFA) shows that many enterprises are finding themselves working much harder for lower returns as profit levels are being squeezed.

"It is incumbent upon policy makers to be concerned that many small companies are finding it increasingly difficult to fill vacancies because of the level of taxation, skills gaps and the availability of alternative emolument in the black economy for some workers," according to SFA assistant director, Mr Pat Delaney.

There is little doubt, he added, that the combined effects of tax wedge/poverty trap means that many small firms are seeing the social welfare/tax system as their main competitor in recruiting new employees, thus fuelling black economy activity. This is accepting that increased competition is a fact of life and is to be welcomed, provided that the playing pitch is level for all competing companies. The survey found that 16 per cent of cited labour costs are the most important barrier or threat to growth and survival. The main culprits are seen as lack of available skills, high mobility, employees seeking to be paid off the books and the attractiveness of social welfare. Some 15 per cent of those surveyed cited increased competition as another problem area. The main reasons were the growth in consumer spending attracting more and larger competitors, particularly within the retail sector, the high level of activity within the black economy, increased competition within the services sector and increases in British imported goods.

Taxation, cited by 9 per cent of respondents, was the third problem area. The main concerns were the inability to fund investment through retained profits and substantial tax wedge difficulties for take home pay of employees.