Scott Wright: Government inertia deeply worrying as businesses battle to stay alive

The hospitality industry has been campaigning for a reduction in the rate of VAT

With each day that passes, the rhetoric becomes ever more desperate.

The warnings from business and consumer groups about the consequences of the energy price crisis, without adequate government action to mitigate it, have in recent days become increasingly stark, and more and more worrying.

Yet still these exhortations go unheeded, with the UK Government saying the public and business must wait until a new Prime Minister is in place before the grand plan is revealed.

Given the magnitude of the price increases involved – the latest rise in the consumer energy price “cap” will see the typical household charged £3,549 per year from October – it is difficult not to feel that the failure of the UK Government to take decisive action and provide adequate reassurance to citizens thus far is a dereliction of duty. Utility costs for both people and businesses have been spinning worryingly out of control for several months now.

READ MORE: Pub and brewing giants call for support to survive energy crisis

The outlook for the pub and brewing industry, still striving to get back on its feet following the damage wrought by protracted periods of coronavirus restrictions, is especially grim.

This week, the leaders of six of the UK’s biggest brewers and pub groups spelled out in stark terms what will be the ultimate impact of the energy cost crisis, should it continue to go unchecked.

In a letter to the UK Government, and to Conservative Party leadership candidates Liz Truss and Rishi Sunak, the company leaders who make up the board of the British Beer & Pub Association warned businesses will be forced to close and jobs will be lost unless the industry receives emergency financial support.

The letter notes that some businesses are facing energy bills that are upwards of 300 per cent more than before the pandemic, with the average bill 150% higher.

And it is not only energy costs that are significantly higher for companies in this sector: the cost of food and drink, wages and taxation have all been soaring too. Combined with consumer confidence laid low by runaway inflation, it makes for a particularly nasty cocktail for the brewing and pub trade.

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The intervention by the BBPA echoed concerns expressed shortly before by the Scottish Licensed Trade Association, which represents the independent part of the pub trade. Hammering home the need for urgent aid – including an energy price cap for firms, a key demand now being made across the wider business community – the SLTA raised the prospect of pubs and restaurants staying closed for the winter simply because owners cannot afford to pay the bills.

That the owners of hospitality businesses are once more considering putting their outlets into mothballs – less than two years after the pandemic led many to take this step – is a truly desperate indictment of the UK’s economic fortunes. But while the hospitality industry is an effective and vocal campaigner, and one that is adept at commanding the media spotlight, it must be acknowledged that other business sectors are suffering just as badly.

Energy-intensive manufacturers are under huge pressure from the rising cost of utilities, which has its roots in Russia’s ongoing war on Ukraine, including the Scotch whisky industry.

A recent survey by the Scotch Whisky Association (SWA) found that 57% of its members, which include the biggest names in the distilling sector, had seen their energy costs increase by more than 10% in the last year, while nearly one-third (29%) saw costs double in this regard. Nearly 40% of distillers said they had seen shipping costs double in the last 12 months, with 43% reporting supply-chain rises in excess of 50%.

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Moreover, the expectation is of worse to come on the cost front. The SWA survey found 57% of distillers expect energy costs to go up by a further 50% in the next year, while 73% are forecasting a further 50% rise in shipping costs.

In response to the crisis, the SWA has urged the UK Government to support the industry by refraining from imposing a further duty hike on distillers in the forthcoming autumn Budget. “The industry has shown remarkable resilience, but this cannot be taken for granted,” said Mark Kent, chief executive of the SWA. “We are at a critical juncture for many of our members.”

The pain of this rising cost of doing business is being felt right across the economy, of course. Like hospitality, retail has had an enormously difficult time since the pandemic took hold nearly two-and-a-half years ago, and once more it is facing acute challenges.

Figures published yesterday by PwC, in partnership with The Local Data Company, showed the rate of store closures in Scotland had slowed to its slowest rate since 2019 in the first half of the year. But while this offers grounds for encouragement, PwC warned that the rising cost of living and business overheads will put retailers under pressure in the second half.

An indication of these pressures face can be seen with the ongoing struggles of Joules Group, the upmarket clothing and homewares company that has seen its share price lose more than 80% of its value since the start of the year.

While some of the problems facing Joules will be unique to the company, it will certainly not be alone in struggling to sell goods at full price given the cost-of-living crisis. It is understandable that consumers are reluctant to buy goods at full price when inflation is so high, but the erosion of margins is certainly not helpful to retailers battling to recover from the massive upheaval that the pandemic left in its wake.

Business groups have wasted no time in coming up with possible policy interventions that government could make to ease the burden. Introducing an energy price cap for business, assuming it is not subject to the regular increases Ofgem has been making to the consumer equivalent, and cutting the main rate of value-added tax on non-domestic fuel bills are among the ideas that merit serious consideration.

But time is fast running out. The longer this crisis drags on, the more it seems that only an emergency package involving direct cash aid will help many businesses survive.