The head of one of the UK’s six main business groups has warned that smaller companies face a ‘challenging’ year ahead.

In his new year statement, Forum of Private Business ceo Phil Orford writes that many small to medium-sized enterprises (SMEs) will continue to experience tough times in 2011 due to factors including reduced public spending, increased costs and late payment.

Orford also warns that the government must fulfil its pledges to cut red tape in the workplace if it wants smaller businesses to replace the jobs set to be lost in the public sector, adding that a long-overdue simplification of the tax system would also encourage more companies to expand.

He argues that, despite current levels of unemployment, many SMEs still struggle to recruit people with the right skills and knowledge, so a refocusing of the education system would also come as a boost to smaller firms.

Orford said: “In 2010 Britain crept out of recession, but many small businesses will find the year ahead even more challenging as they try to grow, creating the jobs lost in the public sector and driving economic recovery.

“Removing the barriers to growth created by tax and red tape must be a cornerstone of emerging enterprise policies. We are pushing for the UK’s complex tax system to be simplified and complying with regulation to be made more proportionate for small firms.

“Employment law, in particular, must cease to be a barrier to job creation and should be rebalanced more in favour of employers - and the majority of the workforce - not just individual employees.

“Simplifying employment law would go a long way towards empowering entrepreneurs to create jobs to grow their businesses, but there is a need to address workforce training and skills.

“With youth unemployment at record levels and small businesses struggling to find staff with the right skill sets, we will be campaigning for training provision that is business-friendly, and calling on education providers to focus on the requirements of small businesses as well as students.”

The forum also launched its Get Britain Trading strategy - aimed at improving the performance of both its members and the wider SME community to aid the wider economy - on releasing the statement.

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