The rising cost of fuel and energy is believed to be one of the greatest threats to SME survival in 2022, according to SME insurance provider Simply Business.
Its new report found that 70% of SME owners nationwide say that rising costs across the board are their biggest challenge this year, with half expecting to increase prices in an attempt to offset increased expenditure. A similar proportion in Yorkshire & Humberside intend to raise prices by 6-10%, and for almost one in 10 owners these increases could be as much as 20%.
As a result, two thirds (64%) of small business owners in our region are calling on the government to review or reduce the energy price cap. A third say the VAT cut needs to be reviewed or extended, and over half feel that the government should review or reduce national insurance.
While the energy price caps do not apply to businesses directly, millions of small business owners are still experiencing increased energy bills at a time when costs are rising in most operational areas. At the same time, with a substantial number of households affected by rising energy bills, consumer purchasing power is going down as people cut back on non-essential spending. SMEs in food and drink, hospitality and retail are most at risk, decreasing revenue and income for small business owners still in the vital post-pandemic recovery period.
Luke Addy, a bricklayer from Sheffield, says: “As a sole trader the rising costs with fuel and energy is ridiculous to the point where I’m having to work longer hours seven days a week to make ends meet and not undercut myself down to fuel expenses.
When I say long hours I am working 8-9 in the evening three or four days a week to make sure I don’t lose out . As you can imagine the stress this has to the point where I think it would be easier working for someone else.”
Jonathan Portes, Professor of Economics and Public Policy at King’s College London, said: “Apart from raising prices, the main response to these adverse pressures from businesses is likely to be to simply hunker down, reduce costs where possible, and get on with it: that is, to pause expansion plans and, for those with employees, to cut back on hiring, hoping that conditions will improve over the coming year. The crucial factor here is likely to be consumer confidence and consumer demand. This has clearly taken a severe hit in recent months, but may recover if inflation reduces and real incomes return to growth.
“What can the government do to help? Fuel and energy prices are by far the largest concern, and here the key drivers are global. However, UK conditions have been aggravated by both Brexit and the recent fall in the pound, which further pushes up energy prices, as well as by the operation of the energy market and the price cap. Nor does the disconnect between the Prime Minister’s call for a “high wage, high productivity” economy and the insistence that workers have to accept large cuts in real wages help to improve consumer and business confidence. While UK businesses remain resilient in the face of further economic turmoil, they need and deserve a more coherent longer-term strategy for the UK economy.”
Alan Thomas, UK CEO at Simply Business, said: “Many small business owners are at breaking point – feeling the crippling pressure of rising costs, energy and fuel prices, alongside their ongoing recovery from the economic impact of the pandemic.
“Our SME Insights Report is a clear indication that small business owners want and need government support, with three in five calling for a review or reduction of the energy price cap.
“In the meantime, whilst the energy price caps do not apply to businesses, owners are seeing their energy bills increase overall. The surging cost of fuel and energy, alongside the overall rising cost of living, will understandably see households cut back on non-essential spending. There is a domino effect in place. The impact to consumer purchasing behaviour will trickle through to the books of small business owners, at a time when SMEs need our support the most.
“Inflation is at a 40-year high and comes with a clear recession warning, posing a serious risk to many small businesses. Sole traders and microbusinesses will feel the pressure more than most. This all comes at a time when many are still in recovery mode. One in six believe they will never financially recover from the pandemic. As a result, two in five owners are calling for long-lasting financial support from the government to help them get back on their feet after Covid-19.
“Accounting for over 99% of all UK businesses and contributing trillions of pounds in turnover every year, small businesses sit at the heart of our communities and are vital to our economy. And while it’s encouraging that the majority remain optimistic about their businesses chances, it’s clear that owners need support to weather the pressure of rising costs.”
