‘You’ve got to eat’: Energy bills are squeezing businesses and people as UK costs soar
Written by admin on August 19, 2022
A high street decorated with British Union Jack bunting in Penistone, UK. The End Fuel Poverty Coalition has warned “a tsunami of fuel poverty will hit the country this winter.”
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LONDON — Facing soaring energy bills, rising costs and rapidly declining consumer purchasing power, small businesses across the U.K. are struggling to make ends meet.
New data on Wednesday showed U.K. inflation jumped to a 40-year high of 10.1% in July as food and energy costs continued to soar, exacerbating the country’s cost-of-living crisis.
The Bank of England expects consumer price inflation to top out at 13.3% in October, with the country’s average energy bills (set via a price cap) expected to rise sharply in the fourth quarter to eventually exceed an annual £4,266 ($5,170) in early 2023.
On Wednesday, a director of U.K. energy regulator Ofgem quit over its decision to add hundreds of pounds to household bills, accusing the watchdog of failing to strike the “right balance between the interests of consumers and the interests of suppliers.”
Real wages in the U.K. fell by an annual 3% in the second quarter of 2022, the sharpest decline on record, as wage increases failed to keep pace with the surging cost of living.
A new survey published Friday also showed consumer confidence falling to its lowest level since records began in 1974.
“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,” said Alan Thomas, U.K. CEO at insurance firm Simply Business.
“Simultaneously, consumer purchasing power is going down as Brits cut back on non-essential spending, harming the books of SME [small and medium-sized enterprise] owners.”
This assessment was echoed by Christopher Gammon, e-commerce manager at Lincs Aquatics — a Lincolnshire-based store and warehouse providing aquariums, ponds and marine livestock.
The business has seen its energy costs rise by 90% so far since the war in Ukraine began, Gammon told CNBC on Thursday, and its owners are provisioning for further increases in the coming months.
“We are combating the rising cost with switching everything to LED, solar panels, wind turbines (planning in process) and closing down unused systems,” Gammon said.
“We have also had to increase the price of products — most of these have been livestock as they are now costing more to look after.”
Customers are increasingly withdrawing from keeping fish and reptiles due to the cost of maintenance, and on Wednesday the store had a customer bring in a snake they could no longer afford to care for.
The spiraling costs forced Lincs Aquatics to close a store in East Yorkshire, laying off several workers, while trying to offer pay rises to staff at its two remaining locations in Lincolnshire in order to help them through the crisis.
The business is also working to expand its online shop due to rising in-store upkeep costs, as heating water for marine aquariums and purchasing pump equipment become ever more expensive.
In early July, a quarterly survey from the British Chambers of Commerce found that 82% of businesses in the U.K. saw inflation as a growing concern for their business, with growth in sales, investment intentions and longer-term turnover confidence all slowing.
“Businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labor,” said BCC Head of Research David Bharier.
“The continuing supply chain crisis, exacerbated by conflict in Ukraine and lockdowns in China, has further compounded this.”
BCC Director General Shevaun Haviland added that “the red lights on our economic dashboard are starting to flash,” with almost every indicator deteriorating since the March survey.
Phil Speed, an independent distributor for multiservice company Utility Warehouse, based in Skegness, England, liaises with brokers to find energy deals for business clients.
He told CNBC earlier this week that for the first time in 10 years, he had been unable to obtain a better deal for a client than their out-of-contract rate — the typically expensive rates paid when a business or individual does not have a contracted deal in place.
“I think the unit rate she was quoting was 60p [pence] a unit for gas, which is just ridiculous. I’d imagine a year ago, we’d have been looking at 5 or 6p. It’s just absolute madness,” Speed said.
“We’ve got no idea what’s going to be presented to us, because we’ve got no idea what’s going to happen. The price is just going ballistic. No-one’s going to buy it.”
The cost of gas for both businesses and consumers are only expected to increase through the colder winter months. Speed noted that local cafes cooking on gas will likely struggle, as they have no choice but to continue using it, unless they can replace gas appliances with electric ones.
‘Scream very loudly at somebody’
Rail strikes have already brought the country to a halt on multiple days throughout the summer and look set to continue, while postal workers, telecoms engineers and dock workers have all voted to strike as inflation erodes real wages.
Conservative leadership favorite Liz Truss was earlier this month forced into a dramatic U-turn on a plan to cut public sector pay outside London, which would have axed wages for teachers, nurses, police and the armed forces alike.
Local authorities recently offered state school support staff a flat pay rise of £1,925 per year, meaning a 10.5% increase for the lowest-paid staff and just over 4% for the highest earners, after pressure from three of the country’s largest unions.
One woman in her early fifties – a member of support staff at a state school in Lincolnshire who asked not to be named due to the sensitive situation and concerns on public reprisals – told CNBC that years of real-terms pay cuts had left many low-paid public sector workers struggling to make ends meet.
The British government in 2010, in the aftermath of the global financial crisis, announced a two-year pay freeze for public sector workers, followed by a 1% average cap on public sector pay awards which was lifted in 2017, with average pay rises increasing to roughly 2% by 2020.
While the 10.5% rise for the lowest-paid school support staff will ease the pressure, the woman said her energy costs had doubled and her private landlord had attempted to increase her rent by £40 per month, which she had not agreed to and which may mean she would need to sell her car to cover basic living expenses.
She called on the government to temporarily reduce the “standing charge,” a fixed daily amount households have to pay on most gas and electricity bills no matter how much they actually use, and to up its efforts to recoup one-off “windfall taxes” from energy companies such as BP, Shell and Centrica, which are reporting record profits..
“I think this is an even bigger crisis than [the Covid-19 pandemic], because this is going to affect not just lower earners, but maybe even middle earners as well, because I don’t see how anybody can absorb those kinds of energy costs,” she said.
The pressure being exerted on businesses and the government to increase wages in the face of skyrocketing living costs has raised further concerns about inflation becoming entrenched – but this consideration is far removed from the reality of working families increasingly being forced to cut back on essentials.
“It’s alright saying ‘we can’t keep putting people’s pay up, that will make the cost of living worse,’ but the cost of living is out of control already, and the only way for people to survive is if their wages increase,” the woman said.
“I know it’s a catch 22, but I don’t see a way around that really — you’ve got to eat.”
The situation in recent months, even before the anticipated worsening of the energy crisis, has already begun to take a toll.
“I just think I’m a very honest, hardworking person. I’ve never committed a crime, always done things right, but now I’m starting to feel like that gets you nowhere in this country,” she said.
“For the first time in my life, I want to go out and march in protest and scream very loudly at somebody, and you just think ‘what does it take?'”