The Forum’s latest quarterly Referendum survey, carried out among its members, shows firms are still facing an uphill battle to make ends meet.
The results showed in total 95 per cent of businesses have seen an overall increase in their business costs. 85 per cent of businesses reported an increase in energy costs, 88 per cent in transport costs, 82 per cent a rise in marketing costs, and 73 per cent a rise in the cost of raw materials/stock.
Also of concern, the report identified around one in three business owners who admitted to being unable to pass rising costs onto customers, forcing them to cut their own costs to keep prices static.
Alex Jackman, the Forum’s senior policy adviser, said: “The major reasons for increases in prices are predominantly down to VAT and energy prices rising, coupled with the weakness of sterling for importers.
“Unfortunately, it doesn’t look as if there is going to be any respite from energy hikes any time soon. Oil prices have started rising again having dipped in the summer, and now we have the likes of British Gas raising prices for customers too. On the horizon we have a 3p a litre increase in fuel duty scheduled for January.
“It could be that we are shaping up for another winter of discontent, particularly if the mercury plunges this winter and firms are hit with huge heating bills and a fall in trade like we saw three years ago. Many firms are already battling the economic elements, but if the weather turns it could spell the end for those already walking a cost tightrope.”
While annual inflation has dropped from around five per cent to three per cent, the research also found small business inflation running at 6.7 per cent. This means prices have risen far faster for micro, small and medium-sized businesses than for the rest of UK society, although this is less than the 8.3 per cent figure reported by the Forum last year in research into business costs, suggesting things have improved albeit slowly.
Wage inflation is around the same level as underlying inflation as reducing staff costs has been the only way for some businesses to continue trading.
Tight credit restrictions have meant that businesses have not been able to access finance to deal with increased costs and 41 per cent feel that they now have less leeway in coping with business costs than they had last year.
81 per cent of firms indicated that changes in costs have been detrimental to their business. 66 per cent have reported cash flow issues as a result, while 56 per cent reported it has been detrimental to employment levels. Worryingly, 69 per cent feel that it has inhibited growth ambitions.
And according to those business owners quizzed, the future looks set to remain bleak with four in five expecting prices to continue to increase in 2013, and 14 per cent expecting a significant increase.
The most frequently cited exacerbating factors were customers paying late (59 per cent) and competitors offering products below cost price (55 per cent). Changing payment terms had been a problem for 24 per cent of businesses in dealing with suppliers, and 26 per cent in dealing with customers. This latter issue suggests there is much work to be done in encouraging more firms to subscribe to the Prompt Payment Code, which addresses the retrospective changing of payment terms and conditions.
“While we understand that the Government is limited in what it can do to ease the situation, particularly with state spending only getting tighter as the austerity drive bites, it is not entirely helpless. We suggest it launches a call for evidence on the use of mandatory e-invoicing for all prime contractors to the public sector,” Mr Jackman continued.
“There are huge savings for government and businesses in the use of e-invoicing and the public sector should mandate the payment method for future procurement.
“The NI holiday for small businesses should also be amended from the first ten employees of a new business to the first two new employees of any business. Having adequate safeguards in place would prevent misuse of this incentive, which could be extended to support employment in a much wider range of businesses.
“For the self-employed we recommend a five-year National Insurance holiday for their first two employees, to encourage a greater number of self employed to take on employees for the first time.
“The cost to businesses of auto-enrolling their staff into pensions can be offset by government concessions in the area of flexible working. The Forum supported a sympathetic introduction of the pension policy as long as businesses were in a financial and administrative position to implement it. However, with the significant impact the policy will have on small businesses, we think the Government should show more common sense in not enforcing other administratively burdensome employment regulations at the same time.”
But Mr Jackman also said government must also consider further measure to mitigate against business rate rises due next April.
“These rises are pegged to the rate of inflation in the preceding September and with some businesses already having to defer paying last April’s huge 5.4 per cent rise, government support for further increases would be very welcome.
“Lastly, we also think that fuel duty rises should be scrapped until the OFT has concluded its investigations into fuel pricing, including the already deferred 3p rise due in January.
“Once these conclusions are known, the Government should implement a fair fuel stabiliser in the 2013 budget.”
Overall shop price inflation slowed marginally to 1.0 per cent in September from 1.1 per cent in August, accoding to the British Retail Consortium. Food inflation was unchanged at 3.1 per cent in September for the third consecutive month. Deflation in non-food increased to 0.2 per cent from 0.1 per cent in August.
Stephen Robertson, British Retail Consortium director general, said: “Falling prices for non-food goods and stable food inflation are slowing overall shop price rises.
“Food inflation remains at a two-year low for the third month running despite inflationary pressures building up in the supply chain from rises in global commodities such as wheat and soyabeans.
“These shop price figures show retailers are holding back much of the impact as they battle it out for every bit of spending available from hard-up customers. Promotions, including multi-buy offers, fuel coupons and price matching are commonplace and helping to keep grocery bills down while non-food prices have now been cheaper than a year ago for eight months in a row as prices of furniture, electricals and clothing are cut to generate sales.”
Mike Watkins, senior manager, retailer services, Nielsen said: “Over the last month, we have seen some welcome stability in food retailing and sales growths have improved a little compared with the early summer. Retailers have maintained the high levels of promotional activity at 35 per cent of sales and food inflation remains at a two-year low point at just over three per cent. This will be helping shoppers to plan with more confidence when juggling their household budgets.”
Stephen Robertson, British Retail Consortium director general, said: “For all the talk of food prices erupting, August’s food inflation was no higher than the previous month’s two-year low of 3.1 per cent. But, with price pressures from global commodities in the pipeline, this is likely to be food inflation bottoming out. The price of products such as bread and pasta is already rising more quickly as increasing wheat costs from poor harvests in the USA filter through. We are likely to see more of that effect not less in future months.
“But intense retail competition in the face of falling disposable incomes, will continue to protect customers from the worst effects of these rising costs.
“More good news is that non-food goods are cheaper than they were a year ago for the seventh month in a row, as retailers cut prices to generate much needed sales.
“That is helping keep overall shop price inflation down.”
Mike Watkins, senior manager, retailer services, Nielsen said: “It’s been a roller coaster year for inflation and we know that shoppers remain cautious and are probably more inclined to save than spend any small increase in household income. So, despite lower inflation in food, slight deflation in non-food and after one of the most intense periods of vouchering from supermarkets during the summer, retailers will now need to focus on limiting any price increases for the rest of the year, as underlying demand is still weak.”
Overall shop price inflation increased marginally to 2.5 per cent in April from 2.4 per cent in March. Food inflation increased to 4.7 per cent in April from 4.0 per cent in March. Non-food inflation slowed to 1.2 per cent in April from 1.5 per cent in March.
Stephen Robertson, British Retail Consortium director general, said: ”Overall shop price inflation edged up slightly because rising food inflation outweighed slowing non-food inflation. Clothing, footwear and electricals prices were actually down on a year ago and, those prices fell faster than the previous month. In the face of falling consumer confidence, retailers’ efforts to generate sales with Easter discounts were key to holding back prices on non-food goods.
“But the upward pressures on food prices, which eased in March, bit back in April. The cost of world commodities, including sugar and wheat, rose even more quickly, inevitably working through to some shop prices. The consolation for customers is that there is a mass of offers to be had and the fact that forty per cent of the groceries being bought are on promotion shows that customers are taking up those offers in a big way.”
Mike Watkins, senior manager, retailer services, at Nielsen commented: ”With higher inflation likely to be with us for the near future, shoppers need to make the most of their more limited budgets and this will include looking for further savings when shopping. Supermarkets have responded by maintaining the highest-ever levels of promotional offers on groceries and non-food retailers are also delivering more price cuts and mid-season sales.”
Research by Aldermore, the new British bank, shows that small businesses worry that they will be hit hardest by inflation.
Aldermore explains that SMEs say they are increasingly concerned that their margins will be squeezed as the price they pay for goods rises without them being able to pass on those increases to their customers.
80% of SMEs surveyed said they were concerned that their suppliers were going to force above inflation cost increases on them. At the same time, only 45% of SMEs felt that they would be able to increase their own prices.
Comments Phillip Monks, CEO, of Aldermore: “Small businesses are worried that the lack of negotiating clout with both their suppliers and their customers means that they are going to come off worst from the current spate of inflation.”
“Big businesses with dominant market shares are going to find it easier to pass on price increases to their customers and wring concessions out of their smaller suppliers. Unfortunately many small businesses don’t have that kind of negotiating power.”
“Few businesses like inflation but small businesses probably least of all.”
Phillip Monks explains that small businesses have worked incredibly hard over the last year to repair and improve their margins so they will be particularly worried if the current levels of inflation do not fall.
Adds Phillip Monks: “Obviously these are not the inflation rates of the 1970s and 1980s but for some sectors, such as transport or food manufacturing, inflation is already causing serious problems.”
The FSB (Federation of Small Businesses) has been calling for the Government to put in place a fuel duty stabiliser, this would cut fuel duty when oil prices rise and increase fuel duty when prices fall. Increases in fuel prices are particularly significant as they can cascade through the economy.
Brent Crude futures recently broke through the $100 dollar a barrel level.