Rising fuel costs are having a “dramatic” effect on the economy, with most smaller firms warning it will be difficult to recruit staff in the coming year, according to a new report published on Monday.

The Federation of Small Businesses said a survey of 9,000 firms showed that four out of five were worried that the cost of fuel would hit their expansion plans.

The business group said the findings made “worrying reading” and called on the Government to use higher than expected tax revenues from North Sea oil to cut fuel duty.

FSB chairman John Wright said: “Small businesses are reaching breaking point and if something is not done about rising fuel prices very quickly then we will have a major economic crisis on our hands.

“The UK’s 4.5 million-strong small business community simply cannot cope with the cost of fuel rising at these rates. The problem is affecting every type of business in every area of the country. The most frustrating thing is that the Government can do something about it. Its estimate of the cost of North Sea oil in the last Budget was well below the actual cost, which means that tax revenues have been well above expectations.

“Why can’t they use this extra money to reduce fuel duty and ease the pain for the millions of small businesses that keep the UK economy afloat?”

In the West Midlands, Mike Hibbs, an employment partner at Birmingham law firm Shakespeare Putsman and a visiting professor in employment law at Birmingham City University, said he had a number of clients in the logistics sector who although they were remaining busy at present, were nevertheless worried by the rising fuel costs.

“They have tried to protect costs as much as possible but there will come a time when these have to be passed on to customers,” he said.
Meanwhile, Midland-based aero engine manufacturer Rolls-Royce has landed almost £7.7 billion in new orders during the first three months of the current financial year but chief executive Sir John Rose has already said that high fuel costs remain a concern to many of the firm’s existing and potential customers.

“The credit shortage and increased fuel costs are inevitably putting pressure on the airline industry,” he said.

Higher oil prices are especially hitting the likes of budget airline easyJet, which more than doubled first-half losses while rival Ryanair, which operates a number of services out of Birmingham International Airport, has warned it may only break even this year.

Executive airline Silverjet folded last week as an eleventh hour buy-out failed to materialise. High fuel costs are thought to be the major reason for the airline’s demise.

The British Chambers of Commerce, supported by many sectors, not least hauliers, has recently condemned the government’s planned 2p fuel duty rise as unjustified.

BCC director general David Frost said: “The rising cost of petrol is hitting everybody hard, not just businesses. With the Treasury estimates on what it would bring in on fuel tax woefully out of line with reality, this £505 million windfall in less than two months must surely rule out the 2p rise scheduled for October. It is simply unjustifiable.”