Chancellor must act now to ease ‘cost of doing business crisis’

The British Chambers of Commerce (BCC) is urging the Chancellor to take bold and decisive action in his Spring Statement to tackle the escalating cost of doing business crisis.

As global and domestic headwinds mount following the invasion of Ukraine, the BCC believes he must act now to protect the UK from a renewed economic crisis.

The call comes as businesses are increasingly reporting a crippling burden from a myriad of cost pressures, including rising raw material costs, soaring energy bills and other overheads:

Simon Boyd, managing director of Reidsteel, which manufactures and builds steel framed buildings, said: “We have seen huge shifts in the commodities market with raw materials like nickel going from $10,000 a tonne to briefly hitting $86,000. That might be just a spike, but the reality is steel making has become much more expensive due to the situation in Ukraine, the aftereffects of Covid and ever-increasing energy prices. 

“On Friday we had an extra £250 a tonne added to our prices for steel sections and plate. We cannot stand an increase in National Insurance or any further increase in any other taxes whatsoever, they need to be looking at reducing the tax burden.” 

Chris Black, managing director of jukebox manufacturer, SoundLeisure, said: “Like every business we are facing increased costs in raw materials, production and energy costs, mainland deliveries and international shipping. In 36 years, I have not personally witnessed anything like this, across the globe, all at the same time. Some of the costs of raw materials are not just impacting the price of goods, they are also impacting lead times. Nickel prices quadrupled last week, and copper doubled!  This is just a small proportion of what we are facing on a daily basis and the cost to the business in man hours and production delays is immense.” 

The ongoing energy crisis is also having a significant impact on consumers and businesses who are facing a sustained period of soaring prices. Businesses have been hit by steep rises in their energy bills, with further increases likely as existing fixed tariff contracts come to an end in the coming months:

Lee Strickland, who runs the Cohort St Ives hostel, said: “Energy prices are a massive issue, they’ve gone up by 250%. This is not sustainable. On top of which we are being squeezed by huge increases in supplier costs. We are still recovering from Covid and this is a huge setback to that recovery.” 

Julia Fairchild, Director at Restorative Techniques, a manufacturer of masonry cleaning machines, said: “We use a lot of electricity in this business and have sought to make savings where possible, however [we’re] now expecting a massive rise in cost and less choice of energy suppliers available.” 

The BCC’s latest economic forecast projects that the war in Ukraine has increased the risk of a recession in the UK by exacerbating the already acute inflationary squeeze on consumers and businesses and derailing the supply of commodities to key sectors of the economy. Raising taxes at this time would weaken the UK’s growth prospects further, by undermining confidence and diminishing households’ and firms’ finances.

With a week to go, the BCC calls on the government to use the Spring Statement to enact the BCC’s Five Point Plan to Tackle the Cost of Doing Business Crisis:

1.       Delay the impending National Insurance rise by one year to give firms much-needed financial headroom to weather this unprecedented surge in costs facing businesses and power the recovery.

2.       Temporary energy price cap for small businesses to protect smaller firms from some of the price increases they would otherwise face, offering the same protection as households.

3.       Additional financial support, through the expansion of the energy bills rebate scheme for households to also include small firms and energy intensive businesses, a new support fund, administered by Ofgem to support the smallest firms with their soaring energy bills and a six-month extension to the Recovery Loan Scheme, leaving it in place until the end of 2022.

4.       A moratorium, for the life of this parliament, on all policy measures that increase business costs, including no new business taxes or added regulatory burdens, but excluding only evidence-based changes to the National Living Wage.

5.       A commitment from the government’s Supply Chain Advisory Group and Industry Taskforce to continue to work with industry to urgently deliver practical solutions to ease the supply chain disruption and labour shortages that continue to drive the upward pressure on prices.

The Five Point Plan gives firms a chance to stabilise without having to seriously increase their prices, cut jobs or cut the investment that is so vital to sustaining our economic recovery from Covid-19.

In Q4 of 2021, the BCC’s QES found two thirds of businesses did not increase investment, with only a third reporting increased cashflow. If not addressed, the surging cost pressures produced by the cost of doing business crisis will continue to lead to increased prices and fuel the cost-of-living crisis currently being faced by people across the country.

The BCC is also calling on energy firms to work more closely with government, business and other key stakeholders to provide more substantial support to help businesses and households to navigate this difficult period.

Shevaun Haviland, Director General at the BCC, said:

“The Spring Statement is taking place against a backdrop of soaring uncertainty surrounding both the UK and global economy, so a business-as-usual approach from the Chancellor simply won’t cut it.

“Business confidence is on the floor. Coming so soon after a covid-induced squeeze on cashflow and investment plans, the cumulative effect of rising raw material costs, soaring energy bills and other overheads is causing many firms to take cost reduction measures. This is weighing down on their ability to invest, recruit and grow.

“Businesses strongly oppose a rise in national insurance contributions as it will be a drag anchor on the economy, landing significant costs on firms when they are already facing a raft of other cost pressures and have built up huge debt burdens.

“The government must now fortify our economy for what will likely be some gruelling weeks and months ahead. It must prove it is serious about doing whatever it takes to support companies through these domestic and global economic shocks.

“Implementing our five-point plan would help shield firms from the worst of the costs’ crisis – giving them headroom to keep a lid on prices, protect jobs and make investment that is so vital to sustaining our economic prospects.”