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Business and industry groups have urged the government to act now to “stem the tide” as producer price inflation hits a record-high 22 per cent.
With news that the consumer prices index rose 9.1 per cent, to a 40-year high, and producer price inflation rose 22.1 per cent, another record high, in the 12 months to May, both the Federation of Small Businesses and the British Chambers of Commerce have warned businesses will collapse if the government does not step in.
Federation of Small Businesses (FSB) national chair Martin McTague said policymakers should act now to address rising consumer inflation at root, by taking pressure off the small firms that are doing all they can to absorb higher input, labour and energy costs, but can only absorb so much.
“A fifth of firms cite input costs as their main concern. Similar proportions say they are struggling to source the right goods and services or have experienced supply chain disruption. One in seven are struggling with labour shortages. One in 10 are still not fully trading,” he said.
“On top of those worries are surging energy bills, travel disruption and the need to service debt, the cost of which is rising.
“As margins are eroded, leaving less and less for firms to invest in upskilling and innovation amid labour shortages and net zero targets, the Government must use the tools at its disposal to help stem the tide.
“That means looking at reversing hikes to national insurance contributions, reductions in business rates for small firms, cuts to VAT, especially on energy, and targeted reductions in fuel duty – many businesses, especially in rural areas, have no choice but to use the roads.
“On energy, policymakers should extend the help that’s been issued to households through the council tax system to micro businesses through the rates system.
“Unless action is taken now, surging costs will continue to be reflected in anaemic growth, productivity and investment figures.
“The small business community shrank in size to the tune of 400,000 over lockdowns. If surging costs keep on unaddressed, we’re set to lose hundreds of thousands more.”
Head of research at the BCC, David Bharier, said the further increase in consumer prices index inflation to 9.1 per cent underscores the severe pressure that businesses and households are under.
“In early 2021, firms were already flagging huge spikes in raw material and shipping container costs as the world economy began re-opening,” he said.
“Since then, global factors have continued to drive up commodity costs, and more and more sectors have been impacted.
“Our own measures tracking firms’ price expectations are currently far beyond anything we’ve seen since our records began in 1989. In Q1 2022, 62 per cent of businesses expected to increase their prices over the next three months, rising to 75 per cent for retailers and wholesalers.
“This has been borne out in the figures, with food and non-alcoholic beverages making the largest upward contribution to the CPI. Further increases to essential items could have a knock-on effect for consumer demand in other areas.
“Inflation is set to continue upwards, with a further rise in the energy price cap yet to come, leaving businesses with mounting economic uncertainty, alongside labour shortages. One immediate measure to reduce the pressure on firms would be to cut VAT on business energy bills to 5 per cent.
“This inflationary surge sits alongside a poor economic outlook and unless the Government acts with urgency to encourage businesses to invest, the chances of a recession will only increase.”