Cost of living crisis: generation of independent businesses could close due to soaring energy bills

The cost of living crisis is set to cause a “generation of lost businesses, jobs and potential”, as small traders across the UK are being forced to close due spiralling bills.

Independent businesses are facing a nightmare winter, as the “perfect storm” of skyrocketing energy prices and increased living costs continues to wreak havoc on lives and livelihoods.

Many local vendors - whether that be cafes, restaurants, shops or pubs - have been forced to close either temporarily or permanently as a result of increased costs, while others face tough times ahead as they fight to remain afloat.

Although the Government has introduced some measures to support families and households with soaring energy bills, small businesses are not covered by the energy price cap - with organisations desperate for more financial help.

The Federation of Small Businesses (FSB) revealed on Friday (19 August) that the majority of independent businesses (53%) expect “no or negative growth” in the next year.

This has prompted policy and advocacy chair Tina McKenzie to warn of a “generation of lost businesses, jobs and potential”, as small traders will disappear from the high street and local communities - perhaps forever.

Tom Weller, who in 2014 launched popular local coffee shop The Groundworks with his business partner Ben, recently appealed via social media for more government intervention.

The buzzing cafe, based in Hitchin, Hertfordshire, is facing a 250% increase to its energy bills come October. This means the company’s utility bills will cost more than its rent.

“We’ve just come out of an exceptionally challenging period for the hospitality industry,” Mr Weller, who also co-owns the gastropub Kite at The Red Hart, told NationalWorld.

“There were rule changes, a lack of consumer confidence, a loss of trade… and now we’re entering a new period of serious upheaval. It’s like being thrown into another fire.”

Ms McKenzie recently told BBC Newsnight that many small businesses have said the current situation is worse for them economically than the coronavirus pandemic.

Mr Weller said that he believes there are three main issues facing the hospitality industry at the moment: soaring energy bills, increased food costs, and “historic unemployment” within the sector - which, when combined, make the “perfect storm”.

He added that because the hospitality sector generally “operates on slim profit margins,” most small businesses will not have the cash reserves necessary to afford these increased costs.

“When bills go up,” he explained, “you’re having to find ways to make bigger profits, which is a pretty astronomical task when you’re a small business like us and only have 25 covers (seats).

“Plus, if there were actually ways to dramatically improve numbers - small businesses would have done so in the past, so the reality is there’s not much we can do.

“It means that more and more small hospitality businesses are going to be closing as a result.”

Mr Weller also believes that larger chains, who can “weather these storms more easily”, could eventually benefit from the cost of living crisis.

He told NationalWorld: “The concern is that small businesses will be forced to sell, and at a reduced rate due to the crisis.

“So chains will expand, buying up space on the high streets left, right and centre.”

This means that when small businesses are looking to buy again, perhaps once the cost of living crisis has been curbed, there won’t be any space left.

“You risk losing that diversity in towns and cities permanently,” Mr Weller said.

He described Hitchin, where The Groundworks and Kite at the Red Hart are based, as a great example of a town that is “full of vibrant, independent businesses,” adding that the “community of independence is really important to the vibrancy of the town.”

He continued: “It creates a hub for people.

“We have customers who are over 80 years old, and come to the cafe every day just to see a familiar face and chat to people.

“If they lose that, there are real health consequences and concerns.”

To cut back on costs, The Groundworks is looking at ways to make the business as energy efficient as possible.

The business is considering investing in a heat pump, an energy efficient device that transfers rather than generates heat.

Mr Weller explained: “There’s an initial sunk cost, but over a longer period of time the investment might start to make sense.”

But some independent businesses will not be able to afford the initial upfront cost, which is why Mr Weller believes the Government should bring VAT rates back down to 12.5%, which is where they were in April.

“It brings back that breathing room and means you’re not fighting a battle on all fronts,” he said.

“If we have that for a temporary period - maybe six or 12 months - it helps small businesses build up a financial reserve.”

He added that it perhaps would also mean businesses can afford bigger upfront investments, in things such as energy efficiency, which will help them in the long run.

Manchester’s night time economy adviser Sacha Lord also recently wrote to Chancellor Nadhim Zahawi to ask for a temporary reduction in VAT on business energy bills in the face of rocketing inflation.

Mr Weller believes The Groundworks will stay afloat over the coming months - but how difficult things will be remains to be seen, especially as the Tory leadership race is still ongoing - with the new Prime Minister not set to be announced until 5 September.

He said: “There’s so much uncertainty. It’s all a bit of a crystal ball moment.

“Thousands of small businesses are struggling with this, but the cost of living crisis is happening to everyone - so something more needs to be done for individuals too.

“You can’t save businesses over people, but businesses are run by people so it will affect everyone on every scale.

“We can only hope the Government makes more changes - but it’s a waiting game at this point.”