To say 2022 has been a tumultuous year so far would be a gross understatement. Last month, inflation soared to the highest level in nearly three decades, reaching 5.5 percent. The Bank of England quickly followed suit by raising interest rates for the second time in three months to 0.5 percent, marking the first back-to-back increase in nearly 18 years and leaving the UK facing a national crisis.
However, while the impact on households has been the focus, soaring costs are also set to have disastrous consequences for SMEs up and down the country.
Take the energy crisis as one example. Gas prices have risen to unprecedented levels, reaching an all-time high of £4.50 per therm, and are set to rise again from April. Whilst the impact of this stark reality will be felt across society, business energy tariffs do not benefit from the price cap extended to residential rates. As a result, there is an alarming possibility that SMEs will face soaring costs regardless of the tariff they choose.
With energy bills expected to continue rising well into next year, these price hikes could cripple many of the SMEs who are still trying to get back on their feet after the economic turmoil of the pandemic and relentless Brexit red tape, unless drastic action is taken.
The chancellor’s plan to offer all households a repayable £200 discount on their energy bills in response to Ofgem raising the dual-fuel price cap comes as a welcomed step in the right direction. However, where is the equivalent support for the UKs SMEs?
From rising fuel and electricity bills to the impact of inflation on the cost of core materials and delivery, not to mention soaring import taxes ‘ these price hikes are all coming at once for businesses and sending monthly bills sky high.
If the UK is to truly ‘build back better’ from the pandemic, then Sunak needs to champion SMEs and not leave them in the lurch. Unlike big corporations, SMEs cannot use their purchasing power to negotiate better deals and are left finding it difficult to make ends meet.
With thousands of small businesses struggling to deal with rising prices and costs, the Government could help resolve this imbalance by providing additional consumer protections to SMEs. Alternatively, a scheme or fund to help microbusinesses become more self-sufficient in terms of energy production could help to mitigate future price hikes.
Whilst Government intervention will be crucial to help SMEs whether the storm, the decisions business leaders take now could also determine whether they sink or swim.
So, what can SMEs do to brace themselves against the rising cost of living?
As the saying goes, ‘every little helps’. During periods of significant financial stress, reducing costs across the business by even just a few percent can add up to a notable saving. Business leaders will therefore need to streamline their operations as much as possible. This could include re-assessing immediate expansion plans, reducing staffing costs and re-evaluating any non-essential business expenses.
Whilst market competition may not be as fierce, it will still be best practice to use a broker to find the best deals out there. SMEs should also bear in mind that a number of energy companies already support schemes to help boost business energy efficiency. Whilst this might not result in an immediate cost saving, these steps could prove vital in the long run.
Location and relationships could also provide a previously untapped source of support. SMEs can explore local suppliers to see if they would consider offering reduced rates due to ease of proximity and, if they haven’t already, consider joining a local business organization. These are a great forum to connect with local business leaders, not only to share advice, but also to seek support. For example, grouping together with a couple of likeminded businesses can help SMEs increase their purchasing power and therefore negotiating capabilities.
SMEs are the backbone of our economy, making up 99% of the UK business population and three-fifths of employment. Therefore, it is vital that suitable measures are taken to promote these businesses and provide them with the support they need to survive through and beyond these challenging times. With thousands of SMEs facing an uncertain few months ahead, it’s crucial that the Government wakes up to, and starts addressing, this stark reality. However, the UKs SMEs must also take action into their own hands and act now to help ensure their future.