Smallcaps feel pinch as bailouts hit spending

FISCAL DOUBLE WHAMMY

Total public spending could reach 1.3 trillion pounds this year if the full extent of Britain's bank bailouts is realised, which as a percent of UK GDP will be at its highest since the last recession in the early 1990s.

"Small businesses are concerned with the huge amounts of money being used to shore up the banks," said Alambritis.

The government will have to raise taxes or cut spending by 20 billion pounds a year by 2015 to meet its own targets for restoring public finances, according to the Institute for Fiscal Studies.

"Once there are signs of recovery the government is likely to tighten fiscal policy quite sharply. Including tax increases to some extent on small business, but a lot of that will fall on the housing sector, which will have a demand impact on smaller businesses," said Page.

This would lead to further pressure on small companies' profit margins.

"There is a concern that business taxes, national insurance contributions, corporation tax, capital gains and VAT may be targeted for increases," said Alambritis.