THE phrase employed was perhaps a little over the top. But comments issued earlier this week by Mark Mulholland, a partner at Glasgow-based accountancy firm Wylie & Bisset, gave an insight into how employers are responding to the unfolding cost-of-living crisis.

And it does not bode well for those with a stake in fostering the revival of Scotland’s beleaguered town and city centres.

Reacting to the surging cost of food, fuel, energy, clothes, travel and rent, after official figures showed annual UK consumer prices index inflation increased to 9.1 per cent in May, its highest rate in 40 years, Mr Mulholland declared that small and medium-sized enterprises should revisit the “trench warfare” mentality with regard to costs that characterised the early days of the pandemic two years ago.

“At the start of the pandemic, SMEs took radical steps to change their business processes by adopting WFH (working from home) practices and I think they need to revisit that 'trench warfare' mentality and adapt their working methodologies to the cost-of-living crisis,” he said.

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“We’re actively encouraging staff to WFH over the summer months to enable them to cut down on their travel time and costs, as well as helping with childcare costs over the summer holidays – which can represent a considerable saving – and adopting hybrid working arrangements to give staff more flexibility can help save businesses money over the medium term by potentially reducing space requirements.”

As consumers increasingly adapt their spending patterns in response to rising prices, it is not the biggest leap of the imagination to conceive that other employers will be adopting a similar mindset.

Moreover, with Covid infection rates surging and further industrial action on the railways a possibility, the case for a return to working from home appears to be strengthening, at least for the short term.

But where does this leave town and city centres that were badly hit by lockdowns and are continuing to struggle to get back on their feet?

While working from home makes clear economic sense for many office-based consumers, it is unhelpful to businesses in urban areas that rely on a steady flow of commuters.

This is especially true for retailers and businesses in the hospitality sector, which are also battling a cost inflation crisis of their own.

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Nic Wood, director of Signature Pubs, which owns 21 outlets across Edinburgh, Aberdeen, Dundee and Glasgow, told The Herald that the company is facing a £3.3 million rise in its annual costs. This is stemming from surging gas and electricity bills, the return of value-added tax to 20 per cent for the hospitality sector, the 1.25% percentage point rise in national insurance contributions, and the 6.6% rise in the national minimum wage.

“To put that in perspective, I don’t think we have ever made £3.3m in Signature pubs,” Mr Wood said. “We have never made that much profit in a year, and that is how much more [we are paying].”

He added: “The amount it is costing our business to function is a country mile from where it was 12 months ago.”

As Mr Wood also noted, the cost of doing business is rocketing at precisely the same time as consumer confidence is wavering in the face of surging inflation, which is leaving less disposable income for expenditure on eating and drinking out, and when there are fewer people coming into towns to work in offices. The recent industrial action that disrupted rail services, while understandable from the perspective of workers seeking a fair wage, also reduced footfall at a difficult time.

With no prospect of inflation easing any time soon, indeed it is now forecast by the Bank of England to rise to above 11% later this year, many more people will be thinking it wise to revert to working from home in an attempt to keep their own spending under control.

While we can hopefully expect inflation to eventually subside – the Bank of England expects it to slow next year before getting back to close to 2% in around two years – the return of a more normal rate of price increases will not solve the many deep-seated problems facing firms that do business in town and city centres alone.

READ MORE: Hospitality trade on ‘cliff edge’ as rates bills poised to ramp up

As highlighted by a special series of reports in The Herald last week, pressure is mounting on the Scottish Government to undertake a profound review of business rates to ensure the system reflects the huge changes we have seen on the high street in recent years, driven by the development of out-of-town shopping centres and the rise of online retailing.

Retailers are concerned over plans by the Scottish Government to raise business rates further still, while the hospitality trade continues to argue that the way the tax is levied means its bills are higher than other sectors.

Leigh Sparks, professor of retail studies at the University of Stirling, branded the current business rates system as a “historical anachronism” as he argued that radical changes are needed if we are to revive our high streets.

“You have got a system that penalises high streets, penalises businesses that want to renovate properties, and privileges those that want to build new buildings on greenfield sites, and want to trade online,” said Mr Sparks, who wrote the recent A New Future for Scotland’s Town Centres report for the Scottish Government.

“We need to think about what element of a property tax we should have, we need to change both property taxes for in-town and out-of-town, we need to think about VAT on renovations and in-town businesses, and we need to think about [a] sales or online tax.

“It is the balance and mix of all of those together which reflect the nature of the economy.

“If you have got 25% of retail sales now going online, and the taxation system isn’t catching up with that, then your taxation base doesn’t reflect the economic realities.”

Given the immediate task facing the Scottish Government to tackle the cost-of-living crisis, and its focus on obtaining the legal right to hold a referendum on independence next year, we probably cannot expect too much attention to be paid to Mr Sparks’ much-welcomed recommendations.

These include a digital sales tax, a moratorium on new out-of-town developments and changes to the tax system to encourage the renovation of older properties in town and city centres.

But exploration of such ideas is essential sooner rather than later if we are serious about giving businesses in urban areas the opportunity to flourish in future.