Scots businesses warn: Cost of living crisis to be worse than Covid

Ministers are under increasing pressure to act int he deepening cost of living crisis, as the Consumer Prices Index (CPI) rose to 10.1% in the 12 months to July, up from 9.4% in June.

It is at the highest level since February 1982, the Office for National Statistics (ONS) said.

Increased food costs were the biggest driver of the latest hike, according to the ONS, with annual inflation for these items now running at 12.7%, up from 9.8% in June, fuelled largely by price rises for basics such as bread, milk, cheese and eggs.

It is the biggest jump in the cost of living since February 1982, when CPI reached 10.4%, according to ONS estimates.

Marc Crothall, chief executive of the Scottish Tourism Alliance issued a challenge government amid warnings that one in six small firms could close due to soaring energy bills.

He said inflation will have a “significant effect not only on Scotland’s tourism industry’s ability to recover from the severe economic impact of the last two years; it will almost certainly see the closure of many businesses who are struggling to trade in this spiral of challenging conditions”.

He said many are reporting they are “on a knife edge with everything heading in the wrong direction; all costs are rising plus domestic and consumer spending and future booking indicators all in slowdown and decline”.

He said: We are now looking at what will be the worst economic conditions in more than four decades and both the Scottish and UK Governments must now respond with meaningful relief and support for business to avoid a scenario which will be much worse than the impact of Covid, certainly for tourism and hospitality.”

He said the lowering of VAT rates, a freeze on the energy price cap and the introduction of a price cap for businesses plus extended relief on business rates were just some of the measures he urged governments to implement and “do so immediately before we see a wave of business closures and job losses”.

Emma McClarkin, chief executive of the British Beer and Pub Association, said publicans were stuck “between a rock and a hard place” as they attempt to cope with rising bills while customers are cutting back on spending.

“[Pubs] need to cover their costs, but they also have customers who are tightening their belts, it’s completely unsustainable,” Ms McClarkin said.

“It’s not an exaggeration to say what we are facing in terms of rising costs could have a worse impact than the pandemic in terms of business closures,” she added.

Kate Nicholls, chief executive of trade body UKHospitality, added: “On average, hospitality businesses are facing annual energy bill increases in excess of 300 per cent – and this is on top of soaring food and drink costs, rising wage bills and record staff shortages. At the same time, customers are experiencing a cost of living crisis that will squeeze their spending, all of which puts at further risk an already fragile hospitality sector.

“The result will be hundreds of failed businesses, thousands of lost jobs and, for some communities, the closure of much loved and relied upon local pubs and restaurants which, [especially] in rural areas, are vital social hubs.”

Cabinet minister Kit Malthouse says government is on a “war footing” so that the new prime minister “is able to make quick decisions” on how to tackle the cost of living crisis.

Inflation is expected to continue rising this year, with the Bank of England predicting it will not drop to a target of 2% for about two years.

Citizens Advice Scotland’s  financial health spokesman Myles Fitt said government intervention was required to help people through the crisis.

“The fact that this increase is driven by a rise in food prices means that many of those most affected are those who were on the lowest incomes to start with. Large numbers of people are struggling just to put food on the table and put the heating on.

“This is not normal, and it needs a better than normal response.”

Rocio Concha, director of policy and advocacy for the consumer organisation Which added: “These figures underline the scale of the cost of living crisis and make clear that millions of people face a dire financial situation in the months ahead. With bills set to rise further, it’s clear that the current level of cost-of-living government help will not be sufficient,” she said.

“Ministers must now move quickly to increase the amount of support for those who are struggling, and businesses in essential sectors, such as supermarkets, energy and telecoms, must also do everything they can to make sure customers are getting a good deal and extra support if they need it.”

The Bank of England has warned the UK will fall into recession later this year, with the economy forecast to shrink in the last three months of 2022 and keep shrinking until the end of 2023.

It has been raising interest rates to try to keep it down. That increases the cost of borrowing and encourages people to borrow and spend less.

Meanwhile energy prices are expected to rise even further with multiple analysts predicting the bills cap set by market regulator Ofgem would rise from £1971 to £3600

Unions who are have been fighting for improved pay for inflation-hit workers warned that the cost of living crisis has become a “living nightmare”.

Trades Union Congress general secretary Frances O’Grady said: “Families are facing a cost-of-living emergency. Ministers must cancel the catastrophic rise to energy bills this autumn, and to reduce future inflationary pressures and make energy more affordable, they should bring energy retail into public ownership.

"To help people with the cost of living this winter, Government should bring forward increases to universal credit and the national minimum wage.

"Companies that were supported by the taxpayer through the pandemic must step up to help too. They should show profit restraint to help keep prices down and to prioritise pay rises for staff.

Unite general secretary Sharon Graham said inflation has reached “new perilous levels” for workers and their families.

“Yesterday, real wages fell to the lowest on record, So if today’s figures prove anything it’s that wages are not driving inflation,” she said.

"Since the pandemic, the FTSE top 350 have seen profits soar by 43%. Britain has a profiteering crisis - when is something going to be done about that?"

And the assistant general secretary of the public services union Unison Jon Richards said: “The cost-of-living crisis has become a living nightmare for millions of working people.

“Wages are slumping at a record rate while prices and bills shoot up. But the government and those angling to be the next Prime Minister appear indifferent to the plight of those struggling to make ends meet.

"Ministers are deluded if they think workers can put up with yet more misery. Above-inflation pay rises are essential to rescue families on the brink."

Thousands of people have joined a call by former Prime Minister Gordon Brown for an emergency budget.

Mr Brown warned earlier this month that a “financial timebomb” was on its way for millions of households in the autumn.

More than 120,000 people have now signed a petition started by the campaign group 38 Degrees, which supports Mr Brown’s demand for urgent financial help for families.

Last week, Education Secretary James Cleverly said any such measure would have to wait until Parliament reconvenes in September.

Mr Brown, a former chancellor and former Dunfermline East and later Kirkcaldy and Cowdenbeath MP was Prime Minister during the financial crisis of 2008.

A Scottish Government spokesman said: “The First Minister has committed to an emergency budget review to assess all opportunities to target additional resources to those most in need during this cost of living crisis. At the same time, the Scottish Government will continue to do everything within its resources and powers to help those most affected.

"The Scottish Government is in regular dialogue with business leaders who have made clear the high cost of doing business in the UK is significantly hampering their ability to recover following the Covid-19 pandemic and impacts of Brexit.

"On August 8 the Deputy First Minister wrote to the Secretary of State for Business, Energy and Industrial Strategy calling for action from the UK Government to respond to business concerns, including the introduction of an energy price cap for small and medium enterprises (SMEs) and VAT reduction on business energy bills.

“More than 100,000 small businesses across Scotland have been supported with rates relief of up to 100%, saving them thousands of pounds a year.”

A UK Government spokesman said: “No national government can control the global factors pushing up the price of energy, but we will continue to support business in navigating the months ahead. “This includes doubling our support for high energy usage businesses, reducing employer national insurance by increasing the Employment Allowance and slashing fuel duty.

“We have also provided the Scottish Government with a record £41 billion settlement for the next three years and the Scottish Government has significant control over taxes and benefits.”