Government tells SMEs to lower prices to help consumers

The government’s newly-appointed cost of living tsar has announced an upcoming campaign asking businesses to cut their prices as inflation rises.

The announcement comes no less than four months after the government’s cost of living package was branded “extremely disappointing” by British business leaders.

Critics have reacted strongly to the plans, which give no mention of subsidies or grants to help absorb the impact that lower prices would have on firms.

We speak to small business owners across the country to get their take on the decision, and hear what they think the government should be doing to support their businesses and customers.

This article will cover:

What is the government’s proposed campaign?
What do SMEs think of the announcement?
Conclusion

What is the government’s proposed campaign?

Reportedly launching in early-July, the new campaign will highlight businesses that are most ‘helping’ consumers deal with the current cost of living crisis by lowering their prices.

The brains behind the idea, David Buttress, was appointed as the government’s new ‘Cost of Living Business Tsar’ earlier in the year.

As an incentive to join the campaign and cut their prices, Buttress (the founder and former CEO of Just Eat) said SMEs will be given ‘kudos’ in the form of adding the campaign name and logo to their branding.

No other financial support is being offered. It is expected that taxpayer money will be spent on a marketing campaign to publicise the proposal.

According to the BBC, firms will be asked to take on the added costs with money that would “otherwise by used on marketing”.

What do SMEs think of the announcement?

The government’s proposal has, unsurprisingly, gone down like a lead balloon in the small business landscape.

The British Retail Consortium (BRC) and the Federation of Small Businesses (FSB) are just some of the many industry organisations that have criticised the campaign as being out of touch with the current challenges facing UK entrepreneurs.

Our coverage of the cost of living crisis reported on the many small businesses that have had to raise costs as a result of squeezed margins – despite their clear reluctance.

In fact, the British Chambers of Commerce’s latest economic survey found that 65% of firms expected to raise prices in the next months leading to September – a record high.

“Ridiculous and patronising.”

Feedback for the policy was largely negative, with one business owner declaring that the idea of asking businesses to make concessions in the current climate is “patronising”.

Matt Phillips is founder of PPR, a pay as you go PR agency for tech scaleups. Phillips says that, given rising inflation and taxes, as well as the energy crisis, lowering prices is “not a viable business strategy in and of itself.

“Businesses will respond to changing market conditions as they see fit – the last thing the business community needs is [to be told] what it already knows.”

“We have had to accept a hit on our margins”

Many businesses are avoiding raising prices, as this has the potential to hurt customer relationships and, ultimately, profit margins.

However, as supply chain costs skyrocket, asking businesses to avoid charging customers more is guaranteed to put them at risk of debt and potential insolvency.

Shoaib Aslam is founder of Start My Business, an online business launchpad. Aslam says that the government calling for cuts places small businesses at greater risk of profit loss.

“Cutting costs would reduce our revenue and therefore lead to our product suffering or even worse, staff needing to be let go.”

Results from a recent survey by Nucleus Commercial Finance found that 23% of UK business leaders fear their company will not survive the financial year due to the current cost of living crisis.

However, most of our respondents say they are prioritising customer experience by taking on as much of the impact of inflation as possible.

Michael Reid is CEO of international iced-drinks SME, Polar Krush. Reid remarks it would be difficult for the company to charge any less than it already is.

“We have been unable to avoid passing on a very small percentage of the cost increases, but we have absorbed almost all the pressure.

“As a business, we have had to accept a hit on our margins as part of supporting our customers.”

“Applying pressure will only make matters worse”

Several of the commenters we spoke to expressed concerns about the long-term impact of the proposal.

With fuel and energy prices only expected to increase in the coming months, most small business owners are worried about preserving cash flow, rather than intentionally risking it.

Faye Finaro is the founder of SOS Beauty, a freelance beautician platform. Finaro admits that hair, beauty, and aesthetics treatments are considered luxury items for consumers, restricting current demand.

“Mobile technicians are being hit the hardest with the rising cost of fuel as this is forcing them to decide between pushing their prices up or taking less profit for completing a treatment.

“The current solution is a short term, and our concern is that there is no plan that extends beyond October.”

“The government should be helping”

The most common opinion amongst the SMEs is that policymakers should be injecting real, measurable cash into a dedicated business response to the cost of living crisis.

Ed Rimmer is CEO at Time Finance, a finance lending company. Rimmer tells Startups that the company has noticed a significant shift in client demand as far more businesses struggle with cash flow challenges.

Speaking of the need for “proper and viable support” from the government, Rimmer asserts that “businesses need respite from overheads – whether that’s a pause on VAT or Business Rates – before they can start to think about lowering costs. [They] simply don’t have the financial capacity to absorb rising costs.”

Shoaib Aslam adds “the government should be helping to connect people with business finance which is vital to help owners keep their company alive. It is unacceptable that they are continually leaving businesses in the dark.”

Conclusion

As they struggle to survive a storm of inflation, energy bill chaos, and labour shortages, the idea that cash-strapped firms can be a crutch for consumer spending is almost laughable.

With nothing officially announced so far on the gov.uk website, there is a strong possibility that the policy will be withdrawn following backlash from critics.

As Matt Phillips speculates, “I would guess this [is] a tactical leak by an internal dissident, intended to cut a bad policy idea off at the neck before it gets a head of steam. Let’s hope it’s a PR storm in a teacup.”

However, proper, cash-backed support is still desperately needed by SMEs. All of the business owners we spoke to told us of the huge difficulty to remain afloat in the face of stagflation – a challenge they currently face with zero government support.

Initiatives such as the £400 grant for households have been designed to give consumers a short-term respite as costs rise.

But policymakers’ focus should instead be on helping SMEs – which constitute 99% of the UK’s business population – to realise a long-term, durable solution to the economic crisis.

What do you think about the government’s proposed campaign? Email us at hello@startups.co.uk to give your thoughts on the initiative.